Brent oil slumps on trade tensions

Oil prices fell more than one per cent overnight, with Brent crude settling near seven-month lows below $US60 a barrel as trade tensions between the US and China intensified worries about weakening global demand.

During the session, Brent traded at a low of $US58.81 a barrel, down more than 22 per cent from its peak in April.

That decline puts the global benchmark in “bear market” territory.

Brent prices have lost more than nine per cent in the past week, with US President Donald Trump vowing to impose new tariffs on Chinese imports and authorities in Beijing making further moves against US agricultural cargoes.

The United States also responded to a decline in China’s yuan on Monday by branding China a currency manipulator.

Trump on Tuesday dismissed concerns over a protracted trade war with China, as Beijing officials warned that the US decision the day before would lead to chaos in financial markets.

International benchmark Brent futures fell 87 US cents, or 1.45 per cent, to settle at $US58.94 a barrel.

West Texas Intermediate crude futures were down $US1.06, or 1.94 per cent, at $US53.63 a barrel.

“As far as the oil market is concerned, there are two key questions: 1) Why should China carry on buying US crude oil? and 2) Why should China continue to adhere to the US sanctions when it comes to buying Iranian oil?” Commerzbank analyst Carsten Fritsch said in a note.

Global equities hit a two-month low and Brent fell more than three per cent on Monday as traders worried the dispute between the world’s two biggest oil buyers would dent demand, helping to prompt Tuesday’s short-covering.

“It’s difficult for oil to hold (up) when you have such moves in equities,” Petromatrix analyst Olivier Jakob said.

Oil prices found little encouragement as the US government forecast that growth in the Permian basin and other shale formations would largely offset production losses from the Gulf of Mexico due to Hurricane Barry.

Crude could still find some support after the market settles on Tuesday, with a Reuters poll showing US crude oil inventories were expected to have fallen for an eighth consecutive week.

On the supply side, Iranian officials have threatened to block all energy exports out of the Strait of Hormuz, through which a fifth of global oil traffic passes, if it is unable to sell oil as promised by a 2015 nuclear deal in exchange for curbing uranium enrichment.

Britain on Monday joined the United States in a maritime security mission in the Gulf to protect merchant vessels after Iranian forces seized a British-flagged vessel.

AAP

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