Oil slumps on supply fears and China tariffs

NEW YORK • Oil prices fell more than US$2 a barrel Friday after two of the world’s biggest producers indicated they might increase output at this week’s OPEC meeting, while U.S. exports were threatened by potential Chinese tariffs on crude oil and refined products.

Oil investors have been nervous ahead of the coming OPEC summit in Vienna. Saudi Arabia and Russia have already boosted production modestly, and have indicated they were prepared to increase output at that meeting.

Brent crude oil fell US$2.50, or 3.29 per cent to settle at US$73.44 a barrel. U.S. crude settled US$1.83 lower at US$65.06 a barrel. In post-settlement trading, U.S. crude retreated further, falling 2.25, or 3.4 per cent, to US$64.64 a barrel.

Brent crude was on track to end last week down more than 4 per cent, while U.S. crude was heading to fall 1.7 per cent.

After settlement, China announced US$50 billion in retaliatory tariffs, in response to a series of levies by U.S. President Donald Trump earlier.

Some investors were surprised when crude oil and other energy products were included for tariffs at a later date, the official Xinhua news agency reported, citing the Tariff Commission of the State Council.

Over the past six months, the United States has exported an average 363,000 bpd of crude oil to China, which along with Canada, is the biggest buyer of U.S. crude.

“They were a big outlet, and we’re going to notice it,” said John Kilduff, a partner at Again Capital in New York. “It’ll take time for other buyers to absorb that crude.”

U.S. crude’s discount to Brent widened in post-settlement trade after China announced the planned tariffs.

Both contracts have drifted lower since hitting 3-1/2-year highs in May. Prices have been pressured by rising U.S. crude production, while the Organization of the Petroleum Exporting Countries, Russia and others look poised to increase output in their meeting in the Austrian capital on June 2223.

“We’re going into an OPEC meeting where everyone is talking about raising production — the only question is by how much,” said Bob Yawger, director, energy at Mizuho in New York.