Oil crashes 6% as Trump announces additional tariffs on Chinese imports

Oil prices plummeted more than 6 per cent on Thursday, declining for the first time in six days, after US President Donald Trump said he would impose an additional 10 per cent tariff on $300 billion worth of Chinese imports starting Sept. 1.

A prolonged trade war between the world's two largest economies has triggered worries about oil demand. 

Brent crude , the international benchmark, fell $3.85, or 5.9 per cent, to $61.20 a barrel by 1:46 p.m. ET (17:46 GMT), having dropped as low as $61.03. US West Texas Intermediate (WTI) crude was down $4.09, or 7 per cent, at $54.49 after sinking to a low of $54.34.

"Oil prices have fallen considerably, today, done in by a one-two punch of the underwhelming Federal Reserve easing moves and the announcement by President Trump that more tariffs will be placed on imported Chinese goods," said John Kilduff, partner at Again Capital Management.

"The US-China trade war has damaged the energy demand outlook greatly, already, and this will only add to those concerns. The trade war is clearly far from over."

Prices were pressured earlier in the session after the Fed reduced interest rates on Wednesday, but against expectations the head of the US central bank said the move might not be the start of a lengthy series of cuts to shore up the economy against global economic weakness.

The Fed's less dovish than expected message triggered a rebound in the dollar, sending the dollar index <.DXY> to a 26-month high of 98.93 on Thursday. A stronger dollar makes greenback-denominated oil more expensive for holders of other currencies. The dollar index turned negative after Trump's comments.

Oil's drop on Thursday came after a bigger-than-expected fall in US inventories and a drop in OPEC production in July, typically bullish drivers for prices.

Inventories at the Cushing, Oklahoma hub, the delivery point for US crude futures, fell by 1.5 million barrels between Friday and Tuesday, traders said, citing data from market intelligence firm Genscape.

But US output remained near a record, above 12 million barrels per day (bpd), making the country the biggest producer in the world.

Output in Texas, the largest producing state, rose by 16,000 bpd to 4.97 million bpd in May, a record high, US government data showed.

"The market was already wobbly on reports by analysts that production would increase faster than demand by 1 million barrels per day in the new year. That kept the oil market under pressure even when the stock market went up," said Phil Flynn, analyst at Price Futures Group in Chicago.

"But the final straw for the oil market was when Trump imposed these additional tariffs and caught the market by surprise. It is raising concerns that the tariffs will slow economic growth and cause a drop in oil demand."

US manufacturing activity slowed to a near three-year low in July and a measure of new orders received by factories rebounded slightly, as the negative effects of the US-Chinese trade war took their toll.

Other data on Thursday showed the number of Americans filing for unemployment benefits rose last week, while construction spending fell in June as investment in private construction projects tumbled to its lowest level in 1-1/2 years.

Total US oil demand in May fell 98,000 bpd to 20.26 million bpd, data showed on Thursday.

OPEC and partners including Russia, an alliance known as OPEC+, have been curbing output this year to support the market. In July, OPEC production revisited a 2011 low, helped by a further cut by Saudi Arabia, a Reuters survey showed.