Oil drops, sending U.S. prices down by more than 1% for the week

China includes U.S. crude in retaliatory tariffs

Oil dropped on Friday, prompting a weekly loss of more than 1% for the U.S. benchmark, after China announced it would impose retaliatory tariffs on $75 billion worth of imports from the U.S., including a levy on crude, amplifying concerns about the global economy and demand prospects.

The tariffs themselves were not very surprising “given the escalation in the trade war of late,” said Marshall Steeves, energy markets analyst at IHS Markit. “However, the specific levy on U.S. crude certainly impacts WTI directly.”

October West Texas Intermediate crude CLV19, -2.49% on the New York Mercantile Exchange — the U.S. benchmark — fell $1.18, or 2.1%, to settle at $54.17 a barrel, suffering the worst of the selloff after reports said China’s tariff list includes a 5% levy on imports of U.S. oil. For the week, the front-month contract saw a loss of 1.2%, according to Dow Jones Market Data.

October Brent crude BRNV19, -0.67%, the global benchmark, shed 58 cents, or 1%, to $59.34 a barrel on ICE Futures Europe, but prices were still 1.2% higher for the week.

President Donald Trump, in a series of tweets, threatened further actions against Beijing and said he had “hereby ordered” U.S. firms to look for alternatives to China. That triggered a sharp selloff in stocks and put pressure on the U.S. dollar, while triggering heavy demand for haven assets such as gold and U.S. Treasurys.

“Prices are quickly reflecting the deteriorating relations between the U.S. and China and the impact that could continue to have on the global economy,” said Matt Smith, director of commodity research at ClipperData, in an interview. “It’s already stretched on for a number of months now and is having a detrimental impact — and this means it’s only going to continue.”

The move also comes with U.S. crude exports to China this month running at their highest level in a year at just shy of 300,000 barrels a day, with a number of vessels carrying U.S. crude set to arrive in China, he said.

China’s official Xinhua News Agency said tariffs of 10% and 5% would take effect on two batches of goods worth $75 billion on Sept. 1 and Dec. 15.

News reports said the tariffs include an extra 5% levy on crude-oil imports beginning next month.

“A 5% tariff on crude oil was not expected in my opinion,” said Stewart Glickman, energy analyst at CFRA Research. Also, the slowdown in the Chinese economy is “bad news for emerging market oil demand, which is where most of incremental demand will come from in 2020.”

Trump earlier this month announced plans to raise tariffs on an additional $300 billion of Chinese imports on Sept. 1 but postponed a portion of that until Dec. 15.

Risks to demand outlooks are high as the trade war remains tense and after Federal Reserve Chair Jerome Powell “failed to deliver a strong easing campaign,” said Edward Moya, senior market analyst Oanda.

In a speech at the Jackson Hole, Wyoming, economic policy symposium, “Powell kept the door open for further stimulus, but we will not see it as quickly as markets may have initially expected,” said Moya.

“Crude will struggle here as significant risks to the global economy and delayed stimulus from the U.S. will dampen demand forecasts,” he added.

Meanwhile, weekly data on the number of active U.S. oil rigs suggested a slowdown in production. Baker Hughes BHGE, -2.57% on Friday reported a drop of 16 in the domestic oil-rig count to 754 this week. That was the largest weekly decline since late April.

In other energy trading, September gasoline RBU19, -1.53% fell 1.5% to $1.6428 a gallon, for a weekly loss of about 0.9%, while September heating oil HOU19, -1.66% lost 1.4% to $1.8156 a gallon, ending around 0.2% higher for the week.

September natural-gas futures NGU19, -0.09% shed nearly a penny, or 0.3%, to $2.152 per million British thermal units, for a weekly decline of 2.2%.

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