Oil headed for its biggest drop in two weeks as signs the worsening U.S.-China trade war will take a toll on global economic growth overshadowed the prospect of OPEC and its allies extending production curbs.
Futures in New York fell as much as 1.1% after Federal Reserve Bank of Boston President Eric Rosengren said the trade standoff is adding a downside risk to his economic forecasts and the Organization for Economic Cooperation and Development downgraded its projection for global growth. The American Petroleum Institute was said to report U.S. crude stockpiles rose by 2.4 million barrels last week, putting more downward pressure on prices.
Oil has swung between gains and losses this month as investors assessed conflicting demand and supply signals. The Organization of Petroleum Exporting Countries and its allies have suggested they may persist with output cuts at a time when rising tensions in the Middle East and unplanned outages from Libya to Venezuela are tightening the supply picture. Meanwhile, the sudden deterioration in U.S.-China relations suggests the trade war is here to stay.
“While forecasts by the OECD and others suggest demand growth will slow, OPEC is expected to control supply,” said Miyoko Nakashima, a senior strategist at Mizuho Securities Co. in Tokyo. “That means there is a limited upside, but prices may stay in a relatively stable range.”
West Texas Intermediate crude for July delivery fell 61 cents, or 1%, to $62.52 a barrel on the New York Mercantile Exchange at 7:45 a.m. in London after dropping as much as 71 cents earlier. The last time WTI closed down more than 1.1% was on May 7. The June futures expired on Tuesday.
Brent for July settlement fell 36 cents, or 0.5%, to $71.82 a barrel on the London-based ICE Futures Europe exchange after closing up 21 cents on Tuesday. The global crude benchmark traded at a $9.28 premium to WTI.
The Paris-based OECD cu t its 2019 global growth forecast to 3.2% from 3.3% after lowering the projection from 3.5% in March. U.S. chipmakers warned that everyone will suffer from the escalating trade war, while American retailers including Home Depot Inc. and J.C. Penney Co. are sounding the alarm over the rising costs the dispute will bring.
A worsening trade war could push WTI below $60 a barrel, Mizuho’s Nakashima said.
If U.S. government data due Wednesday confirms the API report that will be the fourth gain in crude inventories in five weeks. However, the median estimate of analysts surveyed by Bloomberg is for a decline of 1.7 million barrels.
Oil facilities in Libya were targeted in acts of sabotage, according to the nation’s state oil company, while Nigeria’s Forcados crude pipeline has been closed as a precaution after a fire occurred nearby.
Other oil-market news: The OPEC+ pact is hurting the Russian economy, potentially giving President Vladimir Putin a reason not to agree on an extension of the deal The next OPEC meeting was pushed to the first week of July following requests from several countries amid market uncertainty, according to Ecuador’s Resources Minister Carlos Perez Crude futures for July delivery fell 0.9% to 504.4 yuan a barrel on the Shanghai International Energy Exchange