Oil sinks as China targets crude with tariffs

Crude slid to a two-week low after China announced tariffs on U.S. oil for the first time and President Donald Trump signaled he may escalate the trade war.

Futures dropped 2.1 percent in New York on Friday after China’s declaration of new levies on $75 billion of American oil and other goods. Trump tweeted Friday that he will respond to China’s tariffs in the afternoon. A meeting on trade took place around midday in the Oval Office, according to people familiar with the discussions.

Last year, Beijing removed crude from a list of levied goods, signaling the importance of American oil in the global market. The decision to include it now shows how the trade spat has intensified, forcing Asia’s biggest economic power to use duties on the strategic commodity as ammunition.

“We appear to be moving further away from a resolution” to the trade dispute, Noah Barrett, an analyst at Janus Henderson Investors, said during a telephone interview. “Ultimately, this exacerbates fears of slowing economic growth and slowing oil-demand growth.”

Even before the tariffs were announced, Chinese orders for U.S. crude had been on the wane. The Asian nation’s refiners were the ninth-biggest destinations for American oil during the first five months of the year, down from thirdlargest in 2018.

“We see today’s move as a knee-jerk reaction lower driven by sentiment rather than fundamentals,” said Michael Tran, a commodity strategist at RBC Capital Markets.

The latest dust-up between China and the Trump administration came as leaders from the Group of Seven nations prepared to meet in France and central bankers gather in Jackson Hole, Wyoming, to discuss issues including fears of a global economic slowdown.

In a speech, Federal Reserve Chairman Jerome Powell said “we’ve seen further evidence of a global slowdown” and would be watching developments for impact on the U.S.

New York-traded crude futures have dropped more than 7 percent this month as the protracted trade dispute fanned fears about stunted demand. U.S. factory data declined for the first time in a decade, while domestic fuel stockpiles increased this week, aggravating concerns about a potential glut.

West Texas Intermediate crude for October delivery declined $1.18 to settle at $54.17 a barrel on the New York Mercantile Exchange.

Brent for October delivery dropped 58 cents to end the session at $59.34 on the ICE Futures Europe Exchange. Its premium to WTI for the same month traded at $5.17 a barrel.