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Oil extends losing run as trade war deepens

Barrels

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% after closing down 2.1% on Friday as Beijing said it would impose retaliatory tariffs on another $75 billion of U.S. 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% from a low in early August before it started falling last Wednesday as relations between the U.S. and China appeared to be improving.

“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 markets out of the rabbit hole.”

West Texas Intermediate crude for October delivery fell 52 cents, or 1%, to $53.65 a barrel on the New York Mercantile Exchange as of 11:19 a.m. in Singapore after being down as much as $1.21 earlier. The contract has dropped 4.8% since last Tuesday’s close.

Brent for October declined 45 cents, or 0.8%, to $58.89 a barrel on the ICE Futures Europe Exchange after closing 1% lower on Friday. The global benchmark crude was trading at a premium of $5.24 to WTI.

Beijing will impose a 5% 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 U.S. firms were forced to pull out of China that would mean a “deeper entrenchment of protectionist policies” and leave globalization “hanging by a thread,” said OCBC’s Lee.

Other oil-market news:
  • The Iranian oil tanker the U.S. sought to seize in Gibraltar was about halfway into the Mediterranean Sea without declaring a destination Sunday amid speculation over where the roughly 2 million-barrel cargo of crude on board will end up.
  • Crude futures declined 1% to 422.9 yuan a barrel on the Shanghai International Energy Exchange.

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