Oil Tumbles on China Retaliation

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange (NYMEX) oil futures nearest to delivery and Brent crude on the Intercontinental Exchange tumbled to two-week lows in early trading, erasing Tuesday's gains after China retaliated against the United States for imposing tariffs on its goods imported to the U.S. by imposing tariffs against 106 U.S. products.

This is the second round of tariffs imposed by China on U.S. goods, which now cover 234 U.S. products imported by China, including ethanol. China said the second round of tariffs are in response to the Trump administration's announcement this week that it would impose tariffs on $50 billion worth of imports from China, targeting technology and automation. Last month, the U.S. imposed tariffs on steel and aluminum imports, although the Trump administration issued waivers to several allies, including the European Union, Brazil, Canada, Mexico and South Korea. China is reportedly sitting on a surplus quantity of steel.

The tit-for-tat exchange heightened concern that the world's two largest economies would continue to escalate their trade dispute, disrupting strong economic growth including demand for oil.

Major U.S. equity indices took a nosedive at the open, with the Dow Jones industrial Average nearly 450 points lower and the S&P 500 Index down nearly 40 points. The U.S. dollar softened, trading near Tuesday's two-week high.

The latest selloff in equities comes ahead of weekly data from the Energy Information Administration due out at 10:30 a.m. ET, with data released late Tuesday afternoon by the American Petroleum Institute (API) scuttling early-week expectations for inventory drawdowns for products while reporting n unexpected decline in domestic commercial crude oil inventory.

API reported a 3.3 million barrels (bbl) draw in U.S. commercial crude inventories compared with estimates for no change during the week-ended March 30, with stocks at Cushing, Oklahoma, building 4.1 million bbl that was well above expectation for a 1.5 million bbl build.

Expectations for a 1.25 million bbl draw in gasoline inventory and a 2.5 million bbl decline in distillate stocks for the final week of March missed the mark according to API, with the trade organization reporting a 1.12 million bbl gasoline build and 2.2 million bbl increase in distillate stocks.

At 9 a.m. ET, NYMEX May West Texas Intermediate futures were down $1.08 or 1.7% at $62.43 bbl, and have since traded at a $62.10 bbl two-week low. ICE June Brent crude futures were $1.01 or 1.5% lower at $67.11 bbl, trading near a $66.69 two-week low.

NYMEX May RBOB futures were 2.22 cents or 1.1% lower at $1.9519 gallon, trading down to a $1.9387 two-week low. NYMEX May ULSD futures were 3.32 cents or 1.7% lower at $1.9618 gallon at 9 a.m. ET, and traded at a $1.9531 two-week low.

Brian L. Milne can be reached at brian.milne@dtn.com

(BE)

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