Oil Drops Amid Recession Risks and Trade War Tariffs
Oil prices fell on Monday, pushing U.S. crude to the lowest in more than two weeks, as the ever-rising intensity of the trade war between the U.S. and China undermine confidence in global economic growth.
U.S. oil was down 59 cents, or 1.1%, to $53.58 a barrel, having earlier fallen to $52.96, the lowest since August 9.
Brent crude was down 54 cents, or 0.9%, at $58.80 a barrel by 0530 GMT, having earlier touched $58.24, the lowest since August 15.
Concerns about an economic slowdown are being fanned by the rolling up of trade tensions between United States and China.
China’s commerce ministry said last week that it would impose additional tariffs of 5% or 10% on a total of 5,708 products imported from the United States, including crude oil, agricultural products, and small aircraft.
In retaliation, U.S. President Donald Trump said he was ordering U.S. companies to consider means of closing operations in China and making products in the United States instead.
“The only thing that will lift the storm clouds over oil markets this week will be if both China and the U.S. talk and decide to mutually take a step back,” said Jeffrey Halley, market analyst at Oanda. However, Hailey added that he couldn’t “see that happening.”
U.S. Federal Reserve chairman Jerome Powell told an annual economic symposium in Jackson Hole, Wyoming that the U.S. economy is in a “favorable place”. He went on to saying that the Federal Reserve will “act as appropriate” to “keep the current economic expansion on track”. The remarks hinted about the Central Bank cutting interest rates at its next meeting.
Exacerbating concern over the possibility of recession, U.S. manufacturing industries had registered their first month of contraction in almost a decade.
The Brent/WTI spread was -$5.24, after widening 60 cents to settle at -$5.17 on Friday. The spread blew out after China included U.S. oil for the first time in its tariff moves.
Hedge funds and other money managers doubled down on their bullish sentiment, waging U.S. crude to a three month high in the last week as said by the U.S. Commodity Futures Trading Commision (CFTC).
U.S. energy companies cut the most oil rigs in about 4 months last week, with rig counts falling to the lowest since January 2018 as producers cut costs on new drilling and completions.