Oil slumps to 7-month low on trade tensions, surprise U.S. stock build

Oil prices tumbled nearly four per cent to afresh seven-month low, extending recent heavy losses following an unexpected build in U.S. crude supplies and fears of lower crude demand due to deepening U.S.-China trade tensions.

Brent crude futures LCOc1 were down $2.17, or 3.7 per cent, at$56.77 a barrel by 9:44 a.m. CDT (1444 GMT), setting a fresh seven-month low. Prices have lost more than 20 per cent since hitting their 2019 peak in April.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were down $2.06, or 3.8 per cent, at $51.57.

Brent has plunged more than 12 per cent after U.S. President DonaldTrump said last week that he would slap a 10 per cent tariff on a further $300 billion in Chinese imports from September 1, sending global equity markets into a tailspin.

“The market continues to trade lower on concerns about demand growth and the idea that economic growth can be impacted by the trade war,” Gene McGillian, vice president of market research at Tradition Energy in Stamford Connecticut, told Reuters.

“The market isn’t concerned about anything other than howdemand is going to play out through the rest of the year,” he said.

The oil markets extended losses after government data showed that U.S. crude stockpiles rose unexpectedly last week,increasing 2.4 million barrels, compared with analysts’ expectations for a decrease of 2.8 million barrels.

The U.S. Energy Information Administration (EIA) earlierthis week reduced its forecast U.S. demand for crude and liquidfuels, expecting it to rise 210,000 barrels per day (bpd) thisyear – 40,000 bpd lower than its forecast last month.

The agency also cut its forecast for global crude andliquids consumption by 0.1 per cent for both 2019 and 2020. Meanwhile,U.S. crude production was set to rise 1.28 million bpd to 12.27million bpd this year.

“People saw those numbers and it put a negative vibe in themarket,” said Robert Yawger, director of energy futures atMizuho in New York.

Trump on Tuesday dismissed fears that the trade row withChina could be drawn out further. His comments failed to preventshares in Asia from falling for an eighth straight session whileLondon’s FTSE 100 .FTSE gained 0.4 per cent.

But demand for safe-haven assets such as government debtunderscored lingering anxiety over recession risks.

Tensions in the Middle East remain high after Iran seized anumber of tankers in recent weeks in the Strait of Hormuz, amajor chokepoint for oil shipments.

Saudi Energy Minister Khalid al-Falih and U.S. EnergySecretary Rick Perry on Tuesday expressed mutual concern overthreats targeting freedom of maritime traffic in the Gulf.

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