Oil prices fell on Wednesday on escalating trade tensions between the the Trump administration and Beijing and data showing a drop in energy demand in China.  Getty Images photo.

Oil prices down over 3 per cent

Oil prices settled the day down about 3 per cent on Wednesday after Beijing hit the US with tariffs of 25 per cent on a number of US goods and data showed a slowdown in energy demand in China.

Brent crude futures ended the day down $2.37 to $72.28/barrel, a 3.17 per cent drop.  US West Texas Intermediate futures tumbled $2.23 to land at $66.94/barrel.  WTI hit a session low of $66.32, the lowest since June 22.

The Canadian Crude Index fell $1.33 to $39.19.

China announced on Wednesday that it will hit $16 billion worth of US imports, including fuel, steel products, autos and medical equipment, with a 25 per cent tariff.

The escalating trade war between Washington and Beijing has investors fearing a slowdown in the world’s two largest economies that could cut demand for commodities.

“The U.S.-China trade war is set to worsen, and its impact on oil prices will be gradual as the situation develops,” Abhishek Kumar, senior energy analyst at Interfax Energy told Reuters. “Crude oil and refined products affected by additional duties will reduce their competitiveness in the Chinese market.”

In July, China’s crude imports were higher than the previous two months, but are relatively low as smaller, independent refineries have cut their demand.

China imported 8.48 million barrels per day (b/d) last month, up from 8.18 million b/d in July 2017 and June 2018’s 8.36 million b/d, according to customs data.

July crude imports in China were the third lowest in 2018.

Another factor in the drop in oil prices was a lower-than-expected decline in US crude stocks, according to data from the US Energy Information Administration.  Last week, oil inventories fell by 1.4 million barrels, less than the 3.3 million barrels anticipated by analysts.

As well, gasoline stockpiles rose by 2.9 million barrels.  Analysts participating in a Reuters poll prior to the data release had predicted a decline of 1.7 million barrels.

“Overbearing product builds are weighing on the entire energy complex,” Anthony Headrick, energy market analyst at brokerage firm CHS Hedging LLC told Reuters.

Tuesday’s announcement by the Trump administration that it was going ahead with sanctions against some Iranian goods, not including oil, underpinned oil prices somewhat.  Beginning in November, the US is expected to re-impose sanctions against Iran’s crude exports.

According to an Iranian newspaper, Iran’s Foreign Minister Mohammad Javad Zarif said the US plan to cut Iran’s oil exports to zero will not succeed.