Senior economist: US-China trade war may further lower crude prices

TOKYO: Oil traded below US$66 a barrel as escalating trade tensions between the world’s two largest economies added jitters to a market that’s already nervous about the upcoming Opec meeting on output policy.

Futures in New York rose 0.5%. Prices fell 1.2% on Tuesday as China vowed to retaliate against President Donald Trump’s threat to slap tariffs on another US$200bil in Chinese imports, raising fears the growing spat could slow down economic growth and cut oil demand.

Meanwhile, Iran put itself on a collision course with Saudi Arabia at this week’s Opec meeting, rejecting a potential compromise that would see a small production increase.

Oil has been stuck mostly below US$67 this month as investors assess mixed signals from the Organisation of Petroleum Exporting Countries and its allies on whether they will ease production cuts to offset potential supply losses.

Russia is advocating a 1.5 million-barrel increase in collective daily output, while Iran, Iraq and Venezuela argue it’s too soon to back away from the historic caps that helped erode a worldwide glut.

“Investors would have taken more of a wait-and-see stance in ordinary circumstances before an Opec meeting, but factors that are not unique to the oil market, such as the risk of a US-China trade war, could further lower crude prices,” Jun Inoue, a senior economist at Mizuho Research Institute Ltd, said by phone from Tokyo.

“If prices fall too much, that could affect Opec’s discussions on output policy.”

West Texas Intermediate crude for July delivery, which expires yesterday, traded at US$65.40 a barrel on the New York Mercantile Exchange, up 33 US cents.

Prices fell 78 US cents to US$65.07 on

Tuesday.

The more-active August contract rose 34 US cents to US$65.24. Total volume traded was about 37% below the 100-day average.

Brent futures for August settlement rose 35 US cents to US$75.43 on the London-based ICE Futures Europe exchange. The contract declined 26 US cents to US$75.08 on Tuesday.

The global benchmark traded at a US$10.18 premium to WTI for the same month.

Futures rose 0.9% to 464.2 yuan a barrel on the Shanghai International Energy Exchange. The contract fell 1.5% on Tuesday.

The risk of a tit-for-tat trade war rattled global financial markets.

A measure of Chinese stocks held a loss yesterday after slumping 3.8% on Tuesday, the S&P 500 Index fell 0.4% on Tuesday, and safe-haven assets including Treasuries climbed.

Also reverberating through oil markets is the ongoing battle between Opec producers on whether to increase output.

Iran said it rejects a potential compromise that would see a small oil-production increase to appease energy consumers, including one compromise mooted in private by some Opec officials for a 300,000-to-600,000 barrels a day hike in the second half of the year.