Oil prices plunge over 5% to $67 as US-China trade tensions intensify

Oil prices slumped more than 5 per cent on Thursday on growing trade tensions, which have deepened over the US blackballing Chinese telecom giant Huawei.

Around 11.20 pm (IST), Brent crude was down $3.62 a barrel at $67.37. The Chinese behemoth is reeling after US President Donald Trump effectively banned US firms from supplying the firm and its affiliates with critical components, citing security concerns, prompting a slew of tech firms to suspend transactions with Huawei and phase out using its equipment in network infrastructure.

“Oil prices remain under pressure, extending this week's falls amid surging US crude inventories and weak demand from refineries,” said Oanda analyst Dean Popplewell, noting latest data showed crude oil inventories at a two-year high due to weak refinery demand.

Meanwhile, China has hinted it could also leverage its role as the main global supplier of rare earths used in smartphones, lightweight magnets, batteries and other components to slap back. It could also target Apple and other companies that rely on Chinese manufacturing and sales. Trump’s blitz on China’s flagship maker of telecoms hardware, and the possibility that more tech companies could be targeted, has raised fears that Beijing’s retaliation may embroil multiple industries using critical commodities. Rare earths have drawn most attention after President Xi Jinping made a point of visiting a plant this week. China has used them before as a political weapon, notably after a maritime dispute with Japan in 2010.

The potential for a trade-based cold war also highlights the emerging industries where China is ahead in securing supply chains. That includes batteries for electric vehicles and mass storage, which rely on cobalt, lithium and a cluster of other materials that were niche but are now only growing in significance.

Typically viewed as a mass consumer of commodities, here are some of the areas where China has leverage, or a big gap, over the U.S in terms of supply.