Oil drops 2% over trade war, emerging market crises

Representative Image. Photograph:( Reuters )

Reuters New York, NY, USA Sep 13, 2018, 09.49 PM (IST)

Oil prices fell more than 2 per cent on Thursday, slipping back from four-month highs as investors focused on the risk that emerging market crises and trade disputes could dent demand even as supply tightens.

The International Energy Agency warned that although the oil market was tightening at the moment and world oil demand would soon reach 100 million barrels per day (bpd) in the next three months, global economic risks were mounting.

"As we move into 2019, a possible risk to our forecast lies in some key emerging economies, partly due to currency depreciations versus the US dollar raising the cost of imported energy," the agency said.

"In addition, there is a risk to growth from an escalation of trade disputes," the Paris-based agency said.

Brent crude oil fell $1.51, or 1.9 per cent, a barrel at $78.23 by 11:42 a.m. EDT (1542 GMT). The global benchmark on Wednesday hit $80.13, its highest level since May 22.

US light crude was down $1.62, or 2.3 per cent, to $68.75 barrel.

For both benchmarks, this was the biggest single-day percentage drop in almost one month, correcting down from Wednesday's jump in prices after the Energy Information Agency reported a 5.3 million-barrel drop in US crude inventories, versus forecasts aN 805,000-barrel drawdown.

"Yesterday's price upsurge was an overreaction to the larger-than-expected crude draw per the EIA while we also believe that today’s selloff is an exaggerated response to the IEA release," Jim Ritterbusch, president of Ritterbusch and Associates said in a note.

US companies in China are being hurt by tariffs in the growing trade war between Washington and Beijing, according to a survey, prompting US business lobbies to urge President Donald Trump's administration to reconsider its approach.

The White House has invited Chinese officials to restart trade talks just as it prepares to escalate a trade war with China with tariffs on $200 billion worth of Chinese goods.

A weaker U.S. dollar and a reported fall in US production also supported oil prices, Commerzbank said.

US crude oil production fell by 100,000 bpd to 10.9 million bpd last week as the industry faces pipeline capacity constraints.

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