Oil deepens slide on recession fears, China's trade threats

By Devika Krishna Kumar NEW YORK (Reuters) - Oil prices fell more than 1% on Thursday, extending the previous session's 3% drop, pressured by mounting recession concerns and China's threat to impose counter-measures in retaliation for the latest U.S. tariffs on $300 billion of Chinese goods. In a sign of investor concern that the world's biggest economy could be heading for recession, the U.S

Reuters August 16, 2019 01:09:09 IST
Oil deepens slide on recession fears, China's trade threats

Oil deepens slide on recession fears Chinas trade threats

By Devika Krishna Kumar

NEW YORK (Reuters) - Oil prices fell more than 1% on Thursday, extending the previous session's 3% drop, pressured by mounting recession concerns and China's threat to impose counter-measures in retaliation for the latest U.S. tariffs on $300 billion of Chinese goods.

In a sign of investor concern that the world's biggest economy could be heading for recession, the U.S. Treasury bond yield curve inverted on Wednesday for the first time since 2007.

China's on Thursday vowed to counter the latest U.S. tariffs, but called on the United States to meet it halfway on a potential trade deal, as U.S. President Donald Trump said any pact would have to be on America's terms.

A trade war between to the world's two largest economies has roiled global markets and fuelled worries about a slowdown in oil demand growth.

Brent crude fell as much as $1.81, or 3%, to $57.67 a barrel. The global benchmark ended the session down $1.25, or 2.1%, at $58.23 and West Texas Intermediate crude (WTI) settled down 76 cents, or 1.4%, to $54.47.

"Oil is getting whacked again as risk-aversion again kicks in and fears of a trade war inflicted slowdown grip traders," said Craig Erlam, senior market analyst at OANDA.

"WTI had enjoyed a decent rebound over the last week but failed at the first hurdle, running into resistance around the mid-July lows before plunging once again."

The price of Brent is still up 10% this year thanks to supply cuts led by the Organization of the Petroleum Exporting Countries and allies such as Russia, a group known as OPEC+.

In July, OPEC+ agreed to extend oil output cuts until March 2020 to prop up prices. A Saudi official on Aug. 8 indicated more steps may be coming, saying "Saudi Arabia is committed to do whatever it takes to keep the market balanced next year."

But the efforts of OPEC+ have been outweighed by worries about the global economy amid the U.S.-China trade dispute and uncertainty over Brexit, as well as rising U.S. stockpiles of crude and higher output of U.S. shale oil.

"The market is becoming very anxious about global growth," said Tamas Varga of oil broker PVM.

China reported disappointing data for July, including a surprise drop in industrial output growth to a more than 17-year low. A slump in exports sent Germany's economy into reverse in the second quarter.

Meanwhile, a second week of unexpected rises in U.S. crude inventories is adding to the pressure. [EIA/S]

U.S. crude stocks grew by 1.6 million barrels last week, compared with expectations for a drop of 2.8 million barrels, the Energy Information Administration (EIA) said.

Providing some support to U.S. crude prices, inventories at Cushing, Oklahoma, the delivery point for WTI, fell by about 2 million barrels in the week to Aug. 13, traders said, citing data from market intelligence firm Genscape.

That helped narrow U.S. crude's discount to Brent by over 16% to as little as $3.55 a barrel, the smallest level since March 2018.

Also differentiating Brent from WTI is the looming OPEC report, said Bob Yawger, director of energy futures at Mizuho in New York.

"People are really anxious about OPEC's monthly report which is coming out tomorrow, particularly about non-OPEC supply increasing and about 2020 global oil demand taking a hit," he said.

(Additional reporting by Jessica Resnick-Ault in New York, Alex lawler in London, Aaron Sheldrick; editing by Jason Neely and Marguerita Choy)

This story has not been edited by Firstpost staff and is generated by auto-feed.

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