Oil prices fell on Wednesday after China said it would impose tariffs on a number of U.S. goods including agricultural products, raising the prospect of a growing trade war that could impact global growth.
China, the world’s largest importer of raw materials, hit back at the Trump administration’s plan to levy tariffs on $ 50 billion of its goods, retaliating with a list of duties on U.S. imports including soybeans, planes, cars, whiskey and chemicals.
Equity and commodity markets dropped sharply, reflecting growing nervousness among traders and investors.
Brent crude futures fell $ 1.23 on the day to $ 66.89 a barrel by 0918 GMT, bringing losses for the week so far to nearly 5 percent.
U.S. WTI crude futures were last down $ 1.18 at $ 62.33 a barrel.
Oil prices had already been under pressure earlier in the day ahead of a possible rise in U.S. inventories, as reported by the Energy Information Administration (EIA) later on Wednesday.
“We‘re seeing the reaction across the board … crude oil is keeping an eye on stocks and with S&P (futures) down … we’re seeing renewed weakness ahead of the EIA this afternoon,” Saxo Bank head of commodities strategy Ole Hansen said.
Yet fund managers hold more bets on a sustained rise in the price of Brent crude oil than at any time, data from the InterContinental Exchange shows.
The net long position in futures and options tops 600 million barrels of oil, the data shows, meaning that in the event of a sharper drop in price, sellers may find a dearth of buyers.
“What‘s really the main worry is that the long/short ratio is so skewed, meaning who is going to be buying if there is a lot of selling pressure?” Hansen said.
U.S. crude inventories likely saw a buildup for the second straight week, rising 200,000 barrels in the week ended March 30, a Reuters poll of industry analysts showed on Tuesday.
“This morning, it is all about the macro (economic) situation and how the trade relationship between the U.S. and China is evolving,” BNP Paribas head of commodities strategy Harry Tchilinguirian told the Reuters Global Oil Forum.
“This afternoon, if we get strong surprise crude draw, that could help to mitigate what currently seems to be shaping up as a down day.”
The correlation between oil and equities remains strongly positive, meaning a drop on the stock market is likely to be echoed by crude futures.
“Equities have been the most significant external driver for the short-term price direction of oil, with the significant volatility coming (partly) from the perception of a trade war,” said Dominic Chirichella, senior partner at the Energy Management Institute in New York.