(Bloomberg) -- Oil fell to the lowest level in a week as the U.S.-China trade war escalated against the backdrop of swelling American crude inventories.
Futures fell 1.4% in New York on Thursday. In the latest salvo of the dispute between the world’s biggest economies, the Chinese government said it “has no choice but to take necessary measures to retaliate” against planned U.S. tariffs on billions of dollars in products. Meanwhile, U.S. oil stockpiles expanded by about four million barrels during the past two weeks, halting almost two months of storage withdrawals.
“The trade war and other indicators are all pointing to a global economic slowdown,” said Andy Lipow, president of Lipow Oil Associates LLC. “That’s contributing to the overall bearish sentiment towards oil that is continuing today, because these factors don’t change overnight.”
Oil has fallen about 7% this month as the trade war has darkened the global economic outlook and U.S. crude production remained near a record. Investors are fleeing risky assets such as oil and seeking shelter in U.S. government debt, gold and the Japanese yen. Weak economic data from Germany and China and the inversion of a key part of the Treasury yield curve has also fanned concern of a global recession.
With economic data weakening across the globe, “I’m just not sure where the demand comes in that would convince the market to take more upward moves,” said Carolyn Kissane, a professor at New York University’s Center for Global Affairs. “It’s not that we won’t have blips, but how do we get to $65, $70 and stay there?”
West Texas Intermediate crude for September delivery slipped 76 cents to settle at $54.47 a barrel on the New York Mercantile Exchange.
Brent for October settlement declined $1.25 to settle at $58.23 on the ICE Futures Europe Exchange. The global benchmark traded at a $3.81 premium to WTI for the same month.
See also: U.S. Oil Hub Stockpiles Drain as WTI-Brent Spread Narrows: Chart
U.S. stockpiles rose by 1.58 million barrels last week, confounding analysts who forecast a decline. The increase was especially bearish as it happened during the peak U.S. summer driving season, when demand for motor fuels typically surges.
(Corrects the scope of price drop in headline)
--With assistance from James Thornhill, Grant Smith, Sharon Cho and Alex Nussbaum.
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