Oil Extends Decline as US and China Lock Horns in Trade Dispute

Oil fell — with prices on the cusp of losing year-to-date gains — as a US-China trade war kicked off, endangering global growth and energy demand, Bloomberg reported.

West Texas Intermediate retreated below $72 a barrel, after sliding as much as 1.9% just after China’s retaliatory measures were announced, while global benchmark Brent was near $75. China will place levies on a range of US goods, including oil and liquefied natural gas, in response to Washington’s “unilateral imposition of tariffs,” the finance ministry said.

Beijing swung back with almost immediately after US tariffs came into force. The country hit US coal and LNG exports with a 15% levy, and targeted its oil and agricultural equipment with a 10% fee. It also announced export controls on tungsten, a metal used in the defense industry. The dollar initially rose as the measures were announced, then turned lower. China’s purchases of US oil are minimal compared with flows from the Middle East and Russia.

The trade confrontation with China stands in contrast to Trump’s earlier approach with the US’s two neighbours, having pushed back planned levies on Canada and Mexico by a month after the nations agreed to take tougher measures to combat migration and drug trafficking. The flare-up came as China’s markets were shut for the Lunar New Year holidays.

“The volatility in the oil market is a reflection of the policy uncertainty that the new Trump administration brings,” said Charu Chanana, chief investment strategist for Saxo Markets Pte. “Oil’s fundamentals are being overshadowed as the market is largely sentiment-driven, with tariffs playing a significant role in shaping price direction.”

Futures have faced a bumpy start to the year, first rising on a cold winter and US sanctions on Russian energy flows, before paring those gains after Trump took office and threatened blanket tariffs that could hamper global growth. Demand concerns remain pertinent, with top crude importer China’s manufacturing activity unexpectedly declining for a second month in January.

Elsewhere, OPEC and its allies didn’t make any changes to existing production plans at a review meeting on Monday, even as the US president called on the group to lower crude prices by expanding output. OPEC+ is set to gradually increase output in monthly tranches from April.