(Bloomberg) -- The international oil benchmark closed below $60 dollars a barrel for the first time in almost two months as worsening U.S.-China trade relations intensified fears about the health of the global economy, prompting investors across financial markets to flee risky assets.
Futures fell 3.4% to settle at $59.81 in London on Monday. China, hitting back against U.S. President Donald Trump’s threat to pile on more tariffs, allowed its currency to fall to the lowest since 2008. The dispute between the top two economies is threatening energy demand and overshadowing Middle East supply threats.
“Oil is taking a hit with the escalation of the trade war and the slide in the yuan,” said John Kilduff, partner at Again Capital LLC. With no resolution to the dispute in sight, “we’ve seen the economic data out of Asia continue to worsen as a result; economies are contracting and so is demand for energy and crude oil.”
Oil was dragged down with other risky assets including equities and copper as China’s move to let the yuan weaken stoked fears of a currency war. The long-running trade dispute is countering the threat of supply disruptions in the midst of a showdown between Iran and Western powers over crucial Middle East shipping lanes.
“The concern about demand is taking precedence over the Middle East situation,” Kilduff said. “It says a lot that crude is down so much when we know Iran has captured another vessel,” he said, referring to the seizure of a foreign oil tanker by the Islamic Republic in the Persian Gulf on July 31.
See also: Trump Is Spooking Oil Markets More Than Iran: Julian Lee
West Texas Intermediate oil for September delivery slid 97 cents to settle at $54.69 a barrel on the New York Mercantile Exchange.
Brent for October settlement declined $2.08 to $59.81 on the London-based ICE Futures Europe Exchange. The last time Brent dipped below $60 was on June 12. The contract traded at a premium of $5.23 to WTI for the same month.
Apart from letting the yuan slump, China asked state purchasers to halt imports of American agricultural products. Trump characterized the move as “currency manipulation” and indicated he wants the Federal Reserve to counter the Asian nation’s action. Last week, Trump threatened to impose 10% tariffs on another $300 billion in goods from China starting Sept. 1.
Iran said the ship taken by its Revolutionary Guards was carrying around 4,400 barrels of smuggled fuel when it was seized near Farsi Island off the country’s southwestern coast, Sepah News reported. The Islamic Republic subsequently said it wouldn’t overlook any violations by vessels in the Persian Gulf.
Meanwhile, West Texas Intermediate crude briefly pared steep losses earlier in the session after traders cited Genscape data as showing a 2.39 million-barrel drop in inventories at the key storage hub in Cushing, Oklahoma.
“If there’s less crude at Cushing, the Nymex delivery site, that means less supply, and that can help support prices,” said Bob Yawger, director of the futures division at Mizuho Securities USA.
--With assistance from James Thornhill, Heesu Lee, Tsuyoshi Inajima and Alex Longley.
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