Oil prices dropped on Thursday amid concerns over the escalating trade battle between the United States and China, despite a surprise fall in U.S. crude stockpiles. Brent crude oil futures were at $69.92 a barrel by 0102 GMT, down 44 cents, or 0.63 per cent, from their previous settlement.
U.S. West Texas Intermediate (WTI) crude futures were at $61.67 per barrel, down 45 cents, or 0.72 per cent, from their last close. The Sino-U.S. trade war has weighed on oil prices this week as heightened tensions between the world’s two biggest economies could the global economic outlook.
U.S. President Donald Trump said on Wednesday that China “broke the deal” in trade talks with Washington and would face stiff tariffs if no agreement is reached. Higher tariffs are set to take effect on Friday, during Chinese Vice Premier Liu He’s two-day visit to Washington from Thursday.
Despite this, oil prices have been supported by signs of tighter global supply on the back of production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia. Both benchmarks have risen more than 30 per cent so far this year.
Global supply has also been tightened by U.S. sanctions on OPEC members Venezuela and Iran. “From a fundamental point of view, OPEC supply discipline is still in check, and U.S. supplies show tighter markets than expected while Asia demand is still robust,” said Stephen Innes head of trading at SPI Asset Management.
“All of which suggests once the trade war-induced sell-offs abate conditions could settle themselves quickly,” Innes said.
In a sign that Asia demand remains firm, China’s crude imports in April hit a record for the month, at 10.6 million barrels per day (bpd), customs data showed on Wednesday. China is the world’s biggest oil importer. An unexpected drop in U.S. crude inventories kept oil price declines in check. U.S. crude inventories fell by 4 million barrels in the week to May 3, the Energy Information Administration said on Wednesday.