- China tariffs on U.S. goods dent commodities, equities
- U.S. crude inventories likely rose for 2nd week - poll
Oil hit a two-week low on Wednesday after China said it would impose tariffs on a number of U.S. goods including agricultural products, raising the prospect of a growing trade war that could hurt the global economy.
China, the world’s largest importer of raw materials, lashed back at the Trump administration’s plan to levy tariffs on $50 billion of its goods, announcing a list of duties on U.S. imports including soybeans, planes, cars, whiskey and chemicals.
U.S. stocks fell at the start of trade, while in the commodity markets, soybeans were set for their biggest one-day fall since last July. Gold gained, reflecting growing nervousness among traders and investors.
Brent crude futures fell $1.07 to $67.05 a barrel by 1333 GMT, down 5 percent so far this week.
U.S. WTI crude futures fell $1.14 to $62.37 a barrel.
Oil had already been under pressure ahead of a possible rise in U.S. inventories, with the Energy Information Administration (EIA) due to report weekly stock levels later on Wednesday.
“We’re seeing the reaction across the board … crude oil is keeping an eye on stocks and with S&P (futures) down … we’re seeing renewed weakness ahead of the EIA this afternoon,” Saxo Bank head of commodities strategy Ole Hansen said.
Yet fund managers hold more bets on a sustained rise in the price of Brent crude than at any time, data from the InterContinental Exchange shows.
The net long position in futures and options tops 600 million barrels of oil, the data shows, meaning that in the event of a sharper drop in price, sellers may find a dearth of buyers.
“What’s really the main worry is that the long/short ratio is so skewed, meaning who is going to be buying if there is a lot of selling pressure?” Hansen said.
U.S. crude inventories likely saw a buildup for the second straight week, rising 200,000 barrels in the week ended March 30, a Reuters poll of industry analysts showed on Tuesday.
“Oil fundamentals are returning to the forefront of concerns and developments in the U.S. don’t make good reading for market bulls,” PVM Oil Associates strategist Stephen Brennock said.
The correlation between oil and equities remains strongly positive, meaning a drop in the stock market is likely to be echoed by crude futures.
“Equities have been the most significant external driver for the short-term price direction of oil, with the significant volatility coming (partly) from the perception of a trade war,” said Dominic Chirichella, senior partner at the Energy Management Institute in New York.