Mounting trade pressures between the United States and China eroded confidence in the commodities markets, dragging the price of oil lower on Tuesday.
The Chinese government responded to additional threats of $200 billion in tariffs on Chinese products from U.S. President Donald Trump by accusing the administration of resorting to blackmail over talks aimed at drawing down a trade deficit.
“The trade war waged by the United States is against both the law of the market and the development trend of today’s world,” a spokesperson for the Chinese Ministry of Commerce said in a statement published by the official Xinhua News Agency. “It undermines the interests of the Chinese and American people, the interests of companies and the interests of the people all over the world.”
Trade issues could spill over to ding some of the emerging economies in the Asia-Pacific and hurt global demand.
James Bambino, the manager of petroleum news for S&P Global Platts, said most traders are expecting a drain on U.S. crude oil inventories, which would normally send oil prices higher.
“While analysts expect U.S. crude stocks to have fallen around 3.7 million barrels last week, the market will most likely key into export data amid a tighter Brent/WTI spread and doubts over China’s ability to absorb U.S. barrels,” he said in an emailed newsletter.
Spread refers to the difference between the price for Brent, the global benchmark for the price of oil, and West Texas Intermediate, the U.S. benchmark. The premium for Brent has been supported because U.S. infrastructure is insufficient for higher oil production. China has been one of the largest buyers of U.S. crude.
Brent was down 0.61 percent to $74.88 per barrel as of 9:22 a.m. EDT. WTI was down 1.6 percent to $64.64 per barrel.
The price for oil could move lower later this week in response to meetings in Vienna for the Organization of Petroleum Exporting Countries. Led by calls from Saudi Arabia and Russia, a non-member state contributor to efforts to calm the markets, OPEC could put more oil on the market to keep oil prices from moving too much higher.
Oil prices near $80 per barrel brought calls of foul from Trump that OPEC was artificially supporting the market. Higher oil prices would support the U.S. shale industry, but offset the impact of the temporary tax breaks for consumers.
Vienna meetings are expected to be contentious as some member states have complained Saudi Arabia was acting alone. Without mentioning specifics, Iranian Oil Minister Bijan Zangeneh said last month that some OPEC members are acting as “as tools for carrying out U.S. policies.”
The Oxford Institute for Energy Studies called for a “cautious approach” with OPEC increasing production only gradually ahead of its year-end meeting in November.
By Daniel J. Graeber