Published: Thu, August 08, 2019
Markets | By Otis Pena

Oil slumps to new seven-month low on trade tensions

Oil slumps to new seven-month low on trade tensions

Collateral damage from the escalating trade war between China and the US has hit oil demand hard and could push prices lower if trade tensions continue to escalate.

"It just built on the weakness that we've seen this week in crude oil, which is a direct result of the trade tensions between the USA and China", said Brian Kessens, a portfolio manager at Kansas-based Tortoise.

As a result, Brent settled down $2.71, or 4.6 percent, at $56.23 per barrel, the lowest close since early January (the commodity has plunged almost 14 percent since last week); West Texas Intermediate finished $2.54, or 4.7 percent, lower at $51.09. Prices have lost more than 20% since their 2019 peak in April.

At 438.9 million barrels, USA crude oil inventories are about 2% above the five year average for this time of year, according to the EIA crude oil and petroleum weekly storage data, reporting inventories as of August 2, 2019.

President Trump is vowing to impose new tariffs on Chinese imports, and China is retaliating by making further moves against USA agricultural purchases.

Oil extended losses after government data showed USA crude stockpiles rose last week by 2.4 million barrels.

US President Donald Trump on Tuesday dismissed fears the trade row with China could be drawn out. American crude inventories tightened further, falling 3.4 million barrels last week, according industry data.

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It has also has to do with foreign investors exiting Indian stocks owing to other factors like a bigger tax burden. The Standard & Poor's 500 hit a two-month low before clawing back to about a 1 percent drop an hour into trading.

Crude production grew 100,000 bpd to 12.3 million bpd, just under its weekly record high at 12.4 million hit in May.

Elsewhere, data indicating a larger-than-expected drop in U.S. crude stocks offered some support to oil prices. "Assuming there is no recession, oil demand should continue to see robust growth", Commerzbank said in a note.

Crude stocks at the Cushing, Oklahoma, delivery hub for US crude futures fell 1.5 million barrels, EIA said.

The U.S. also responded to a decline in China's yuan currency Monday by branding China a currency manipulator, with Beijing then accusing the U.S. of causing chaos in financial markets.

Tensions in the Middle East remain high after Iran seized a number of tankers in recent weeks in the Strait of Hormuz, a major chokepoint for oil shipments.

The API is reported a draw in crude oil inventories this afternoon, but the bullish news could lift the sentiment on Tuesday, and prices continued to slide after the EIA reported a surprise build in commercial crude inventories on Wednesday morning. "Crude oil inventories were disappointing and the stock market is in worrisome territory".

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