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Oil in longest losing run in five weeks as US-China trade war deepens

Oil had rallied by more than 10 per cent from a low in early August, as relations between the US and China appeared to be improving, before it started falling last Wednesday

Sharon Cho | Bloomberg 

crude oil

Oil fell for a fourth day, set for the longest run of declines in more than five weeks, after the latest escalation in the trade war blindsided investors and worsened an already-shaky global demand outlook.

Futures in New York dropped as much as 2.2 per cent after closing down 2.1 per cent on Friday as Beijing said it would impose retaliatory tariffs on another $75 billion of US goods, including oil for the first time. President Donald Trump later responded with additional tariff increases on Chinese goods, and also called for American companies to pull out of Asia’s largest economy.

The deepening trade hostilities wrong-footed hedge funds, who had slashed bearish bets on crude in the week through Aug. 20.

Oil had rallied by more than 10 per cent from a low in early August, as relations between the US and China appeared to be improving, before it started falling last Wednesday.

“The global trade system is in total anarchy,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “There’s no end to the bloodshed at the present, and it will probably take a lot to pull out of the rabbit hole.”

West Texas Intermediate crude for October delivery fell 61 cents, or 1.1 per cent, to $53.56 a barrel on the New York Mercantile Exchange as of 2:46 p.m. in Singapore after being down as much as $1.21 earlier. The contract has dropped 4.9 per cent since last Tuesday’s close.

Brent for October declined 52 cents, or 0.9 per cent, to $58.82 a barrel on the ICE Futures Europe Exchange after closing 1 per cent lower on Friday. The global benchmark crude was trading at a premium of $5.26 to WTI.

Beijing will impose a 5 per cent tariff on American crude imports from Sept. 1, it said on Friday. China, which was the top buyer of American oil as recently as the middle of last year, has scaled back shipments as the trade war worsened.

Two top White House officials said President Trump has the authority to force American companies to leave China, although trade experts aren’t so sure. Trump cited a 1977 law on emergency economic powers, which some hardliners in his administration have been urging him to invoke over the past two years.

If US firms were forced to pull out of China that would mean a “deeper entrenchment of protectionist policies” and leave globalisation “hanging by a thread,” said OCBC’s Lee.

First Published: Mon, August 26 2019. 14:07 IST
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