Oil falls as US-China trade tensions rise

Oil prices retreated by more than 3% on Thursday as fears of a deepening U.S.-China trade war and a possible recession eclipsed earlier relief created by President Donald Trump’s announcement of a 90-day pause on some tariffs against most countries, Reuters said.

Brent futures fell $2.27, or 3.5%, to $63.21 a barrel by 1317 GMT. U.S. West Texas Intermediate crude futures dropped $2.26, or 3.6%, to $60.09.

The retreat followed a volatile session on Wednesday, when crude benchmarks, which had tumbled as much as 7% earlier in the day, ended around 4% higher following Trump’s announcement of a pause on reciprocal tariffs on most countries, though he maintained a baseline tariff rate of 10%.

However, the reprieve excluded China. Trump increased tariffs on Chinese imports to 125 per cent from 104 per cent, deepening a trade standoff with the world’s second-largest economy and a leading consumer of crude.

The trade war between the U.S. and China leaves significant uncertainty over oil demand growth with more risk to downside for prices, said Ashley Kelty, analyst at Panmure Liberum.

“Volatility remains high, and it remains tricky to see where oil prices may settle in near-term,” said Kelty.

China also announced an additional import levy on U.S. goods, imposing an 84% tariff from Thursday.

Despite the tariff pause, Ole Hansen, head of commodity strategy at Saxo Bank, said the world was still facing the most severe trade barriers since the 1930s.

With a lot of uncertainty still existing, the prospect for a major rebound in crude is not possible at this stage when the market has to deal with the risk of weakening demand and rising production from OPEC,” said Hansen.

Analysts at ANZ Research warned that a deeper global slowdown could push prices lower still.

“In a worst-case scenario of a global recession (which is not our base case), there is scope for further weakness… for oil, we view $50/bbl as a likely support level,” the analysts said in a note.

Investors were eyeing mixed supply drivers as well.

The Keystone oil pipeline from Canada to the United States remained shut on Wednesday following an oil spill near Fort Ransom, North Dakota, while plans to return it to service were being evaluated, its operator South Bow (SOBO.TO), opens new tab said.

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