U.S. oil skids more than 3% lower as China tariffs target crude imports

Oil futures headed sharply lower Tuesday as an increase in tariffs took hold this weekend, heightened fears about a global recession — a bearish factor for global crude appetite. Worries about the impact of Hurricane Dorian also hurt sentiment, traders said.

The U.S. and China both raised tariffs on goods imported from the other, with duties levied by Beijing also hitting some U.S. crude. Bloomberg News on Monday reported that despite President Donald Trump indicating progress on the trade front, neither party has agreed on terms to officially restart negotiations and a date for a visit to the U.S. by China officials hasn’t been set.

Reuters reported that the 5% levy on U.S. crude marks the first time the fuel has been targeted in the yearslong trade conflict between Beijing and Washington.

West Texas Intermediate crude for the October delivery CLV19, -3.23% was down $1.88, or 3.4%, to reach $53.22 a barrel on the New York Mercantile Exchange. In August, front-month prices for the U.S. benchmark suffered a 5.9% monthly decline, according to Dow Jones Market Data.

However, the front-month WTI contract saw a 1.7% weekly rise on Friday after a large fall in U.S. inventories.

Also, data Friday from Baker Hughes BHGE, -2.07% implied a slowdown in U.S. oil-drilling activity, with the number of active oil rigs down 12 to 742 this week. That followed last week’s drop of 16 oil rigs.

Global benchmark, November Brent crude BRNX19, -1.84% lost $1.21, or 2%, to $57.45 a barrel on ICE Futures Europe after posting a decline of 1% on Monday, which was a holiday for U.S. trading.

“This is a critical month for the US-China trade war and if we don’t see a major step in the right direction, oil could easily break below the summer lows,” wrote Edward Moya, senior market analyst at brokerage Oanda, in a daily note, referring to trade tensions and the impact of September trade for crude.

Last Friday, data from a Reuters survey showed oil output from the Organization of the Petroleum Exporting Countries rose in August for the first month this year, with members of the group pumping 29.61 million barrels a day, up 80,000 barrels a day from July’s revised figure.

Oil inventory data due this week from the American Petroleum Institute and the U.S. Energy Information Administration will be each delayed by a day to Wednesday and Thursday, respectively, because of the U.S. Labor Day holiday on Monday, when most major U.S. markets were closed.

Meanwhile, Hurricane Dorian, downgraded to a Category 3 storm, hovered over the northwestern Bahamas, and was expected to near Florida later Tuesday.

“The latest round of tit-for-tat tariffs by the Chinese included a 5% tariff on all Chinese imports of U.S. crude oil. Hurricane Dorian is causing major demand issues and the cracks are responding accordingly,” wrote Robert Yawger, director of energy at Mizuho Securities USA LLC, in a Tuesday research note.

However, reports indicated that two major petroleum stations in the Bahamas may not severely impact global supplies. According to Bloomberg News, Buckeye Partners LP operates a large crude and refined products terminal at Freeport, and Equinor ASA has a terminal in nearby South Riding Point, which have a combined capacity of more than 30 million barrels of crude and condensate.

Back on Nymex, October gasoline RBV19, -4.97% traded at $1.4633 a gallon, down 6.6 cents, or 4.3%. October heating oil HOV19, -2.66% also declined by 5.3 cents, or 2.9%, to $1.784 a gallon.

October natural gas NGV19, +2.54% climbed by 6.9 cents, or 3%, to $2.354 per million British thermal units.

Looking to near-term weather, the current outlook for natural gas “skews supportive, with much of the southern and southwestern U.S. projected to see above average cooling demand over the next 1-2 weeks,” said Robbie Fraser, senior commodity analyst at Schneider Electric.


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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya