(Bloomberg) -- Oil extended its biggest monthly decline since May as concern over U.S.-China trade tensions outweighed signs that OPEC’s supply cuts are trimming stockpiles.
Futures fell 2.8% in New York, extending the month’s slide to almost 6%. Concerns about demand for swelling U.S. production have been stoked as China gets set to start taxing U.S. oil from Sunday. American oil explorers, even as they cut drilling to a 19-month low, are producing record volumes of crude.
“It’s simply positioning ahead of the long weekend,” said Bob Yawger, futures director at Mizuho Securities USA in New York. “If you were long, would you want to go home this weekend still long, with really no idea what kind of twitter feed the POTUS is going to unload while you hanging out at the beach bar?”
Oil remains under pressure as the outlook for the global economy continues to be weak and the U.S. pumps out crude at record-high levels. Further, Russian earlier said it was cutting production but not as much as it had agreed to with OPEC and its allies.
At the same time, there are signs that inventories are being drawn down. U.S. stockpiles fell in the week ended Aug. 23 to the lowest level since November, government data show.
The impending Beijing 5% tariff on U.S. oil is particularly responsible for the recent weakness in WTI relative to Brent. The American benchmark is now fetching a $5.49 a barrel discount to its global counterpart, the widest in nearly a month.
“The wider spread is a sign of the trade war,” said Rob Haworth, who helps oversee $151 billion at U.S. Bank Wealth Management in Seattle. Chinese buyers would have to find alternatives since U.S. oil has become more expensive, he said. “That will push up Brent prices, while weakening U.S. oil.”
West Texas Intermediate for October delivery sank $1.61 to settle at $55.10 a barrel on the New York Mercantile Exchange.
Brent for October settlement, which expires Friday, fell 65 cents to $60.43 a barrel on the ICE Futures Europe Exchange. The more-active November contract sank $1.24 to $59.25.
Traders are also keeping an eye on Hurricane Dorian that’s now expected to become a Category 4 storm and make landfall on Florida’s east coast, the first major hurricane to hit the area in 15 years. Threats of the storm has already forced Chevron to remove some non-essential staff from two of its platforms in the Gulf of Mexico.
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