Crude oil prices dropped Wednesday to $69 per barrel, representing about two percent reduction over its previous prices.
The prices of the different baskets of crude oil were weighed down by equity markets as China threatened to escalate the trade war with the United States, stoking concerns that an ongoing stand-off could hurt oil demand in the global market.
Supply constraints linked to the Organisation of the Petroleum Exporting Countries’ output cuts and political tensions in the Middle East offered some support, however.
Brent crude futures, the international benchmark for oil prices, were at $69.11 a barrel, down $1, or 1.4 per cent, after dropping to a session low of $68.08.
US West Texas Intermediate (WTI) crude futures fell $1.41, or 2.4 per cent, to $57.73 per barrel, after hitting a low of $57.14.
According to a report by Reuters, amid signs of escalating tensions between the world’s two biggest economies, China and the United States, the Asian nation has signalled its readiness to use its dominant position in rare earths to strike back in a trade war with the US, Chinese newspapers warned yesterday.
Rare earths are a group of 17 chemical elements used in everything from high-tech consumer electronics to military equipment.
Trade worries and slowdown fears have pressured investors to dump so-called “risk assets” such as equities and oil globally and seek safety in German and US government debts.
While China has so far not explicitly said it would restrict rare earths sales to the United States, Chinese media have strongly implied this will happen.
In the United States, cash crude markets in Cushing, Oklahoma and fuel markets in the area have been roiled this week by pipeline outages and disruptions due to flooding in the Midwest after heavy rains.
United States crude oil inventories were forecast to have drawn down last week, after climbing to the highest levels since July 2017, a week earlier due to near record high production and lower refinery runs in the Midwest.
Despite these concerns dragging on oil markets, crude prices remain supported on overall supply tightness.
Iranian May crude exports fell to less than half of April levels to around 400,000 barrels per day (bpd), after the United States tightened the screws on Tehran’s main source of income.
Adding to the support are hopes that supply cuts led by OPEC and its allies, known as OPEC+, implemented at the start of the year to prop up the market, would be extended in a meeting next month.
Russia will carefully consider extending its oil output reduction agreement with OPEC+, Russian First Deputy Prime Minister, Anton Siluanov, told Reuters yesterday.