Oil prices tumbled on Wednesday after Libya announced it had reopened its four oil ports and trade tensions between the United States and China escalated.  AFP/Getty Images file photo by Mahmud Turkia.

Brent oil prices down over 5 per cent Wednesday

Oil prices dropped on Wednesday after Libya’s National Oil Crop lifted a force majeure on four of the country’s oil ports and trade tensions between the United States and China mounted.

These factors outweighed a significant drop in US crude stocks.  The US Energy Information Administration reported oil inventories dropped by nearly 13 million barrels last week, the biggest decline in nearly two years.

“In spite of the extraordinary draw in crude oil inventories, the market is under pressure after refiners produced a record amount of gasoline this week and in conjunction with a greater than expected build in distillate inventories,” Andrew Lipow, president at Lipow Oil Associates told Reuters.

By 2:27 p.m., EDT, Brent crude dropped $5.03 to $73.83/barrel and US crude fell $3.58 to $70.53/barrel.  The Canadian Crude Index was down $3.61 to $43.79.

The Trump administration’s threat to place tariffs on a further $200 billion of Chinese goods drove commodities and stock markets lower.

“Trade concerns have bitten today,” Michael McCarthy, chief markets strategist at CMC Markets told Reuters. “If these tariffs are introduced there will be an impact on global growth and demand.”

China, the biggest consumer of US crude, has threatened to tax US oil exports if these trade tensions continue.

In Libya, the reopening of four oil ports could mean production and exports from the terminals would “return to normal levels in the next few hours”, according to the country’s state-owned National Oil Corp (NOC).

A civil war in Libya that forced the closure of the ports has resulted in a drop in oil output from 1.28 million barrels per day (b/d) in February to 527,o00 b/d currently.

“Libyan relief changes the conversation about spare capacity,” John Kilduff, a partner at Again Capital Management told Reuters.

After US President Donald Trump re-imposed sanctions on Iranian crude, concerns about the lack of spare capacity were compounded by the Libyan port closures as well as declining production in Venezuela.

But on Tuesday, US Secretary of State Mike Pompeo said the United States will consider requests from some countries to be exempted from sanctions on Iranian crude imports.

Previously, the US had said all countries must not import Iranian crude beginning on November 4, or they may face financial restrictions.

In its weekly report, the US EIA forecasts Brent crude prices to average $73/barrel in the second half of 2018 then dip to $69/barrel in 2019.

In the July 2018 update of its Short–Term Energy Outlook, the EIA predicts that WTI crude oil prices will average $7 per barrel below Brent prices in the second half of 2018 and $7 per barrel lower than Brent in 2019.