Oil set for sixth weekly loss as trade war stokes demand fears

A bruising week for oil has set prices on course for the longest weekly losing streak in three years as a trade war between the world’s two biggest economies stokes fears it could sap energy demand.

Futures were headed for a 2.8% loss this week. The US and China are threatening to slap additional tariffs on imports from each other in a matter of weeks, with the tit-for-tat protectionist measures set to expand.

At the same time, fears about global oil supplies have receded after producers pumped more, according to the International Energy Agency (IEA).

Oil is trading near a seven-week low on fears the intensifying trade tension will crimp global economic growth and increase financial vulnerability. Supply fears could return to the fore later this year due to US sanctions on Iran, the IEA said, with some crude buyers already looking elsewhere for supplies before the restrictions take effect in November.

“Overall, there seems to be a bigger downward force on oil with China’s retaliatory tariffs against the US,” Min Byungkyu, a Seoul-based global market strategist at Yuanta Securities, said by phone.

“There are still concerns over a possible decline in U.S. oil sales to China as it could disrupt America’s supply balance by increasing its stockpiles and even end up creating a glut.”

West Texas Intermediate crude for September delivery traded at $66.58 a barrel on the New York Mercantile Exchange, down 23 cents, at 11:00. The contract slipped 13 cents to $66.81 on Thursday. Prices are headed for a sixth weekly decline, the longest such streak since August 2015. Total volume traded was about 5% below the 100-day average.

Brent for October settlement fell 25 cents to $71.82 on the London-based ICE Futures Europe exchange. Prices dropped 21c to $72.07 on Thursday and are headed for a 1.9% drop this week. The global benchmark crude traded at a $5.89 premium to WTI for the same month.

In Shanghai, futures for September delivery fell 1.2% to 512.9 yuan a barrel after losing 0.8% on Thursday.

China will apply 25% duties on American diesel, gasoline, propane and other petroleum products from August 23, according to the nation’s commerce ministry.

The latest levies against an additional $16bn worth of imports from the US match America’s plan to add 25% tariffs on the same value of Chinese goods. Washington is also reviewing 10% duties on a further $200bn in Chinese products.

In the latest list, US crude was spared in a sign that America has become too big to ignore in the oil market. As recently as June, China was the top foreign buyer of American crude, importing a record 15 million barrels that month.

The Asian nation may impose duties later if President Donald Trump doesn’t back down, according to Li Li, a research director at ICIS-China.

Oil-market news:

The Trump administration forecasts that it will persuade countries to cut Iranian oil imports by as much as 1 million barrels a day when it reimposes energy sanctions in early November, according to two people familiar with efforts to choke off Tehran’s crude sales.

A price war is brewing between top oil producers in the Middle East, and the US sanctions may be at the heart of it. Crude has decoupled versus the currencies of Russia, Brazil and Canada, with internal market dynamics pushing them in different directions, according to research from Societe Generale SA.

Energy explorers are looking to public markets to expand pipeline networks in the biggest American oil field as shipping bottlenecks threaten to curtail production in the prolific shale region.