HOUSTON, Oct 11 — Brent and United States crude futures fell more than US$2 a barrel, or more than 3 per cent, yesterday as US President Donald Trump’s threat to impose increased tariffs on China cast a shadow over the demand outlook in a market seen as oversupplied.
“The sell-off was driven by a shift to risk-off markets following Trump’s post threatening tariffs on Chinese goods,” said Giovanni Staunovo, an analyst with UBS.
Brent crude futures settled at US$62.73 a barrel, down US$2.49, or 3.82 per cent, the lowest since May 5.
US West Texas Intermediate crude finished at US$58.90 a barrel down US$2.61, or 4.24 per cent, the lowest since early May.
“Today is the culmination of a variety of factors of which Trump’s threat of a massive increase in tariffs on China is just the latest,” said Andrew Lipow, president of Lipow Oil Associates.
Production increases from the Organisation of the Petroleum Exporting Countries (OPEC), additional output gains in North and South America, and the loss of geopolitical risk after the Gaza ceasefire agreement “are all factors that can be layered on top of Trump’s announcement this morning of tariffs on China”, Lipow said.
Trump, who is due to meet Chinese President Xi Jinping in about three weeks in South Korea, complained on social media about what he called China’s plans to hold the global economy hostage, after China dramatically expanded its export controls on rare earth elements on Thursday. China dominates the market for such elements, which are essential to tech manufacturing.
In addition to threatening to cancel the meeting with Xi, Trump said he may impose a massive increase in tariffs on Chinese goods.
Israel and Palestine’s Hamas signed a ceasefire agreement on Thursday in the first phase of Trump’s initiative to end the war in Gaza.
Under the deal, which Israel’s government ratified yesterday, fighting will cease, Israel will partially withdraw from Gaza, and Hamas will free all remaining hostages in exchange for hundreds of Palestinian prisoners held by Israel.
The Gaza ceasefire deal means the focus can move back to the impending oil surplus, as OPEC proceeds with the unwinding of production cuts, said Daniel Hynes, an analyst at ANZ.
A smaller-than-expected November hike in output agreed by the OPEC and allies (OPEC+) on October 5 eased some of those oversupply concerns.
“Markets’ expectations for a sharp ramp-up in crude supply have not manifested themselves in substantially lower prices,” BMI analysts said in a note yesterday.
Investors are also worried that a prolonged US government shutdown could dampen the American economy and hurt oil demand in the world’s largest crude consumer.
