Oil headed for its biggest weekly drop since December as the rapidly escalating trade war caused investors to reassess the outlook for global growth, drowning out concern over multiple supply risks.
Futures in New York rebounded 1.3 per cent Friday after plunging 5.7 per cent the day before. Crude is being caught up in a stampede out of riskier assets driven by the White House’s blacklisting of Huawei Technologies Co. and several Chinese surveillance companies, moves that have been met with defiance by Beijing.
A surprise jump in American oil stockpiles has also weighed on prices this week.
Anxiety over the trade war is taking precedence over a supply backdrop riddled with risks including a tense Middle East, a steadily deteriorating situation in Venezuela and production disruptions from Russia to Nigeria. The drop in oil prices will give the Organization of Petroleum Exporting Countries and its allies more incentive to extend their production cuts beyond June.
“Bearish sentiment is increasing in the market, largely because of the U.S.-China trade conflict, which is getting worse,” said Takayuki Nogami, the chief economist at Japan Oil, Gas and Metals National Corp. in Tokyo. “Crude may have limited upside next week” as economic indicators in various countries are likely to provide more evidence of the trade war’s impact, he said.
West Texas Intermediate crude for July delivery rose 64 cents, or 1.1%, to $58.55 a barrel on the New York Mercantile Exchange at 11:28 a.m. in Singapore after being up as much as 75 cents earlier. The contract is down 6.7% this week, heading for the biggest weekly loss since Dec. 21, 2018.
Brent for July settlement rose 78 cents, or 1.2%, to $68.54 a barrel on the London-based ICE Futures Europe exchange after tumbling 4.6% Thursday. It’s fallen 5.1% this week. The global oil benchmark was at a $9.99 premium to WTI.
President Donald Trump described Huawei as “very dangerous” on Thursday even as he suggested the Chinese technology giant could be included in some kind of a trade deal. The White House also proposed tariffs on goods from countries that it deems are engaging in competitive devaluation of their currencies, a move that would further escalate its assault on global trading rules. China has blamed Washington for wrecking trade talks and insisted the U.S. must alter its “wrong practices” before negotiations can resume.
American crude stockpiles rose by 4.7 million barrels to the highest level since mid-2017 last week, according to Energy Information Administration data. Gasoline and distillate inventories also increased.