Oil prices dipped early on Wednesday as the escalation of the trade dispute between the world’s two largest economies, the United States and China, was unable to offset strong Chinese oil import data and growing tension around Iran over the end of the U.S. sanction waivers.
As of 07:07 EDT on Wednesday, WTI Crude was down 2.31 percent at $60.81, while Brent Crude traded down 2.40 percent at $69.53 before the release of the weekly inventory report by the EIA.
Oil prices dipped on Tuesday after the American Petroleum Institute (API) reported a build in crude oil inventory of 2.81 million barrels for the week ending May 3, coming in over analyst expectations of a 744,000-barrel buildup in stockpiles. Including this week’s data, the net build is now 20.92 million barrels for the 19-week reporting period so far this year, using API data.
Further potential oil supply losses from Iran and Venezuela, however, are not enough these days to offset the sell-off in oil, after market participants turned their attention to the demand side of the equation.
Just a few days ago, the market was pricing in that the U.S. and China would soon sign a trade deal and avoid a major slowdown in global economy, which is typically a major hurdle to resilient oil demand growth.
However, with two tweets on Sunday threatening new tariffs on China as of this Friday, U.S. President Donald Trump shattered market calmness and sent equity and commodity markets sharply lower as investors and traders started to panic over a possible significant global economic slowdown and pulled money out of riskier assets such as oil.
According to an exclusive report by Reuters on Wednesday, President Trump’s Sunday tweets were actually a reaction to China reneging on almost all major points of a draft trade deal with the U.S., with Beijing backtracking on commitments to reforms and laws to meet U.S. complaints in intellectual property rights, competition policy, and trade secrets, among others.
The significant setback in trade talks outweighed bullish factors for oil such as China’s record crude oil imports in April, which could also be attributed to refiners rushing to buy oil from Iran before the end of the U.S. sanction waivers for all Iranian oil customers, including the biggest, China.