Oil Down As China Strikes Back With Tariffs; Trade War Looms

But Trump rattling Iran's cage could cause an upswing in crude prices: File Image/Pixabay

A sharp rise in U.S. crude inventories combined with ongoing concerns about a possible U.S.-China trade war due to president Donald Trump's tariff imposition – and China's retaliation - caused oil on Wednesday to drop by over 2 percent.

After the Energy Information Administration disclosed that crude stockpiles rose nearly 9 million barrels last week (partly due to an increase in Canadian imports prior to that country caving in to Trump's tariff demands), Brent settled down $1.59, or 2 percent, to $74.61 per barrel, while West Texas Intermediate settled down $1.67, or 2.3 percent, to $71.03.

The EIA also reported a weekly supply rise of 2.2 million barrels for gasoline, while distillate inventories declined by 5.5 million barrels; refinery utilization rose by 1 percent to 84.5 percent, the increase likely the result of recent weather-driven demand for heating oil.

As for China, after Washington announced a 10 percent tariff on its exports, Beijing announced tariffs on imports of U.S. oil, liquefied natural gas, and coal, causing pundits such as Andrew Lipow, president of Lipow Oil Associates, to state that "China putting a tariff on U.S. imports reduces the demand for those commodities, which need to be redirected into another market."

Meanwhile, the U.S.'s possible reinstatement of sanctions against Iran prompted Ahmad Assiri, research strategist at Pepperstone, to speculate that "The resulting supply squeeze could sustain the upward momentum in oil prices, particularly amid slower than expected supply adjustments from OPEC+ producers."

Bloomberg noted that investors have withdrawn from the crude and fuel markets since Trump's return to office, "although concerns remain over further restrictions on supply from Iran and Russia, as well as over delayed sanctions on crude from Canada and Mexico…..some Middle Eastern oil grades have strengthened as a result, with Saudi Arabia hiking the price of its flagship variety to Asia by the most in more than two years."

Geopolitical concerns notwithstanding, Tyler Richey, co-editor at Sevens Report Research, insisted   that trends suggest further waning demand for oil and refined products, and that "If we don't begin to see signs of firming inflation" with gasoline supplied rising back towards 9 million barrels per day or higher in the weeks ahead, then "WTI futures dropping back below $70 [per] barrel will become rather likely."