Crude prices slide as trade war ‘escalates’

Greenback tumbles

LONDON, Aug 24, (RTRS): Oil prices fell sharply on Friday after China unveiled retaliatory tariffs against about $75 billion worth of US goods, marking the latest escalation of a protracted trade dispute between the world’s two largest economies.

Brent crude futures, the international benchmark for oil prices, fell 88 cents to $59.04 a barrel by 1327 GMT.

US West Texas Intermediate (WTI) crude futures slid by $1.33 to $54.02.

“Policymakers and investors remain cognizant of the economic headwinds that are gathering force, given that the US-China trade conflict threatens to drag on for longer,” said FXTM market analyst Han Tan.

China’s commerce ministry said it would impose additional tariffs of 5% or 10% on a total of 5,078 products originating from the United States, including agricultural products such as soybeans, crude oil and small aircraft.

Market attention was also focused on a speech by US Federal Reserve chief Jerome Powell at a meeting of global central bankers at Jackson Hole, Wyoming, hoping for news on whether it will cut interest rates for a second time this year to boost the US economy.

Meanwhile, St. Louis Federal Reserve Bank President James Bullard said policymakers will have a “robust debate” about cutting US interest rates by half a percentage point at their next policy meeting in September.

Decade

Exacerbating concern over the possibility of recession, US manufacturing industries registered their first month of contraction in almost a decade.

“Some have blamed the hesitant tone (for oil prices) on an end-ofsummer lull. Yet, in truth, the sense of unease stems from ongoing worries about the global economy,” said Stephen Brennock of oil broker PVM.

Harry Tchilinguirian, of BNP Paribas, said the market had some other bearish data, noting a rise in Saudi Arabian oil exports while Russia’s crude output moved above its quota under an OPEC+ agreement. He also pointed to Russian oil major Rosneft helping to ship Venezuelan oil to China and India.

OPEC, Russia and other producers have, since Jan. 1, implemented a deal to cut output by 1.2 million barrels per day. The alliance, known as OPEC+, renewed the pact in July, extending the curbs to March 2020 to avoid a build-up of inventories that could hit prices.

Iran’s foreign minister said talks held on Friday with French President Emmanuel Macron about a landmark 2015 nuclear deal were “productive”.

Iran has said it will scale back compliance with the pact unless the Europeans find a solution enabling Tehran to sell its oil despite US sanctions.

Meanwhile, the dollar stumbled on Friday after President Donald Trump ordered US companies to start looking for an alternative to China as Beijing imposed more tariffs on American goods,further exacerbating a prolonged trade war between the world’s two largest economies.

Mass

That triggered mass selling in the dollar, which fell from a threeweek high against the euro and to one-week troughs versus the Japanese yen and Swiss franc. Benchmark US 10-year Treasury yields also fell sharply.

The dollar, however, strengthened against the Chinese yuan in the offshore market, hitting a two-week high. “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA,” Trump wrote on Twitter. Trump cannot legally compel US companies to abandon China immediately.

He gave no detail on how he might proceed with any such order. His tweet followed China’s announcement on Friday of retaliatory tariffs on about $75 billion worth of US goods, putting as much as an extra 10% on top of existing rates. “All of this adds to uncertainty in terms of geopolitics,” said Fran Rodilosso, head of fixed income portfolio management at VanEck in New York.

“Obviously, the uncertainty is with regard to global growth and that has been everyone’s chief concern.” Trump’s comments overshadowed a speech by Federal Reserve Chair Jerome Powell, who did not announce a major stimulus measure to ease a worsening global economic outlook, but set the stage for further interest rate cuts.

Powell said the US economy was in a “favorable place” and the Fed would “act as appropriate” to keep the economic expansion on track. “Fed Chairman Powell’s speech at Jackson Hole suggests that he is leaning toward a September rate cut, but he did not lay out a reaction function regarding the Fed’s rate path beyond September,” said Philip Marey, senior US strategist, at Rabobank.

The Fed’s annual economic symposium in Jackson Hole, Wyoming, ends on Saturday. Trump, however, was enraged by Powell’s speech, saying he was not sure who was the bigger enemy, the US central bank chief or Chinese leader Xi Jinping.