Oil traded near a seven-week low as China retaliated against the U.S. administration’s latest tariffs, heightening trade tensions between the world’s two biggest economies.
West Texas Intermediate futures fell 0.1 percent after sliding 3.2 percent Wednesday. China will slap 25 percent duties on an additional $16 billion worth of American goods, including petroleum products, from Aug. 23. Prices declined on Wednesday as Energy Information Administration data showed U.S. diesel and gasoline stocks gained and crude inventories dropped lesser than forecast.
Crude has retreated from the highs of June as the U.S. and China show no sign of backing down from the trade fight, raising concerns over global economic growth. Investors are also closely watching whether Saudi Arabia and other producers will increase output to replace potential supply losses from Iran as President Donald Trump is set to impose sanctions on the country’s oil exports from November.
“The fears of a slowdown in trade activities spilling over to the oil market weighed on prices since a slowdown in the world’s two largest economies could affect demand for oil,” said Michael Poulsen, an analyst at Global Risk Management Ltd.
WTI crude for September delivery was at $66.87 a barrel on the New York Mercantile Exchange at 10:57 a.m. in London. The contract declined $2.23 to $66.94 on Wednesday, the lowest close since June 21. Total volume traded was about 10 percent below the 100-day average.
Brent for October settlement traded at $72.31 a barrel on the London-based ICE Futures Europe exchange, up 3 cents, after dropping $2.37 on Wednesday. The global benchmark crude traded at a $6.06 premium to WTI for the same month.
China will apply 25 percent tariffs on American diesel, gasoline, propane and other petroleum products, according to the country’s commerce ministry. While crude has been spared this time, the Asian nation may impose duties at a later date if Trump doesn’t back down, according to Li Li, a research director at ICIS-China.
As recently as June, China was the top buyer of U.S. crude, importing a record 15 million barrels that month. However, Chinese refiners are unlikely to increase purchases even after crude was removed from the list of goods slated for tariffs, according to Michal Meidan, an analyst with Energy Aspects Ltd.
In the U.S., nationwide crude stockpiles dropped 1.35 million barrels last week, according to the EIA, less than the 3 million barrels decline forecast in a Bloomberg survey. Supplies stored in the key hub of Cushing, Oklahoma, slid for a 12th straight week. Gasoline inventories increased by 2.9 million barrels, the data show.
The new U.S. sanctions may put Russia’s longer-term crude production potential at risk. Occidental Petroleum Corp. is selling a Texas oil terminal that funnels millions of barrels of American crude to Asia and Europe and has help drive U.S. exports to a record high. This earnings season, the shale rally started to show some growing pains. After a year in which soaring oil prices buoyed the industry, second-quarter reports brought some nasty surprises for investors.