Crude oil slumps to worst day of the year

Investors spooked over U.S.-China trade turmoil

Oil spiralled to its worst daily performance of the year as mounting trade tensions between the world’s biggest economies sent investors fleeing from risky assets.

Futures in New York and London fell more than 5 per cent on Thursday for the steepest intraday declines since Dec. 24. Equity markets also slumped: the Dow Jones industrial average dropped more than 400 points after the Chinese Communist Party’s flagship newspaper published commentaries warning of a “technology cold war” with the U.S.

West Texas Intermediate crude for July delivery fell 5.3 per cent to $58.16 a barrel at 12:10 p.m. on the New York Mercantile Exchange. Brent, the international crude benchmark, dipped below $70 on London’s ICE Europe Futures exchange for the first time in more than a week.

Growing gloom over worldwide trade amplified the pessimism that followed Wednesday’s surprise jump in American crude stockpiles. Inventories rose by 4.7 million barrels last week to the highest level since mid-2017, the U.S. Energy Department said, defying expectations for a drop. Fuel stockpiles and production also climbed, while refinery activity weakened.

“It seems like we’re going to be entrenched in a trade war, which is really going to hurt demand for crude oil,” said Tariq Zahir, a commodity fund manager at New York-based Tyche Capital Advisors LLC.

Trade concerns and expanding American petroleum stockpiles have smothered a rally that saw the U.S. benchmark jump 41 per cent during the first four months of the year. The supply threats that sparked oil’s upsurge persist and include a growing proxy war between Saudi Arabia and Iran; production outages in Russia, Nigeria, Venezuela and Libya; and output cuts by the Organization of Petroleum Exporting Countries that may be extended to the end of 2019.

Nonetheless, WTI fell below $60 a barrel for the first time since March and dipped below its 200-day moving average. A settlement below that level would be seen by some analysts as a further sell signal by investors.

Oil investors should get accustomed to “a hell of a lot of volatility,” ConocoPhillips’ chief executive officer Ryan Lance said during a conference on Thursday. Global oil markets generally remain “well supplied” but also “thinly balanced” between supply and demand.

“If we see $80, we kind of tell people: Be prepared, you might see $40 or $50 on the back end,” Lance told the Association of International Petroleum Negotiators. “Cycles are getting shorter, the peaks and troughs are getting significant.”