Oil headed for its biggest monthly slump this year as fears that the U.S.-China trade war will hurt demand overshadowed concern over rising political tensions in the Persian Gulf.
Futures slipped to the lowest in more than two months in New York and London on Friday. Trade friction between the world’s two biggest economies escalated this week as Beijing threatened to restrict the sale of rare-earth minerals, fanning worries that global growth will be affected. Meanwhile, a jump in U.S. gasoline inventories countered speculation that oil markets are tightening.
Oil’s pullback this month illustrates that the supply issues that have preoccupied crude markets for much of this year are giving way to concerns about demand. Even though OPEC and its allies are reducing output, the U.S. is imposing sanctions on Iranian and Venezuelan exports, and tensions are flaring between Saudi Arabia and Iran, fears over the health of the global economy are pushing prices lower.
“Renewed trade tensions have weighed on the price of risk assets,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA.
West Texas Intermediate crude for July fell as much as $1.76, or 3.1%, to $54.83 a barrel on the New York Mercantile Exchange, the lowest since March 8. The contract traded at $55.33 as of 8:49 a.m. local time, taking its decline this week to 5.6% and its slump in May to 13%.
Brent for July settlement retreated $1.89, or 2.8%, to $64.98 a barrel on London’s ICE Futures Europe exchange after earlier falling 3.7%. The global benchmark crude was trading at a premium of $9.67 a barrel to WTI.
In fresh evidence of the impact of the trade dispute, a Chinese manufacturing gauge for May dropped more than forecast. The country is mobilizing its state-run energy industry to prepare for a long struggle with the U.S., and also has readied a plan to restrict exports of rare earths, according to people familiar with the matter.
Oil’s sell-off continued on Friday after President Donald Trump vowed to impose a 5% tariff on Mexican goods until that country stops immigrants from entering the U.S. illegally.
See also: Trump Tariff on Mexican Oil Would Slam U.S. Gulf Refiners
“Given oil markets are tethered to the hip of risk markets currently, this is bad news for oil bulls,” said Stephen Innes, head of trading at SPI Asset Management.
Other oil-market news Saudi King Salman Bin Abdulaziz accused Iran of threatening global oil supplies at a meeting of Arab leaders that called on the international community to confront Tehran following attacks on shipping. The U.S. State Department sought to quash speculation that the Trump administration is easing its clampdown on Iranian oil exports after a sanctions waiver program ended May 2.