Oil Thwarted by Trade War Fears as Trump Doubles Down on Tariffs

Oil headed for its worst week in more than a month after U.S. President Donald Trump called for tariffs on more Chinese goods, souring investor optimism that tensions between the world’s two largest economies will ease with negotiations.

Futures fell as much as 1.1 percent in New York and are set for a 2.6 percent drop this week. China’s Commerce Ministry said it had very detailed retaliatory measures after Trump ordered his administration to consider levies on an additional $100 billion in imports from the Asian nation, spurring a flight from risk assets on concern a full-blown trade war will damp global economic growth.

Uncertainty over the spat has rattled investors and pushed oil below $64 a barrel this week. It’s also undermined the effect of a surprise drop in U.S. stockpiles that was helped by record high crude exports. While China is retaliating against Trump’s moves by taking aim at America’s rural heartland by proposing levies on politically sensitive farm commodities such as soybeans, its list of targeted products also includes some petrochemicals, indicating it is willing to use energy as a weapon.

“We now have to start looking at the U.S.-China trade war as a downward geopolitical risk,” said Olivier Jakob, managing director at consultants Petromatrix GmbH. “This is starting to not be funny anymore, and there is a risk to reach a point where global asset markets become tired of the White House wars and move back into cash.”

West Texas Intermediate for May delivery dropped as much as 72 cents to $62.82 a barrel on the New York Mercantile Exchange, and traded at $63.28 at 2:13 p.m. in London. The contract is heading for a second weekly drop. Total volume traded was about 4 percent above the 100-day average.

Brent for June settlement lost as much as 66 cents to $67.67 a barrel on the London-based ICE Futures Europe exchange and is down 2.9 percent this week. The global benchmark crude traded at a $4.94 premium to June WTI.

The new front in the trade war is also sending commodities from soybeans to copper tumbling. The Bloomberg Commodity Index that measures returns on 22 basic resources has lost 0.8 percent this week.

Oil-market news

The alliance between OPEC and Russia that coordinated historic oil-output cuts could last “ indefinitely” and be formalized by setting up a new organization including other major producers, Russian Energy Minister Alexander Novak said. Tensions in Iran’s neighborhood, including the threat of military action in the Strait of Hormuz, pose a bigger risk to oil than the return of U.S. sanctions against the Middle Eastern producer, Citigroup’s head of commodities research Ed Morse said. Eni SpA is in talks to sell a stake in its giant oil discovery in Mexico to Qatar Petroleum International, according to people with knowledge of the plans. Gasoline futures dropped 0.4 percent to $1.9733 a gallon, heading for a second weekly decline.