Oil Settles at Four-Month Lows

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange extended losses on Monday, with the U.S. West Texas Intermediate benchmark settling modestly lower, as investors raise concern of recession amid escalating global trade disputes.

Oil futures fell and equities markets were mixed on Monday after Mexico warned of retaliation against U.S. tariffs, while rejecting the idea of "safe third country" for Central American migrants. Mexico's foreign minister said during a press-conference on Monday the country is weighing several options to address escalation in U.S. tariffs, including hitting back with import levies on selected U.S. goods. Trump administration announced last week a progressive 5% increase in tariffs on all goods and services from Mexico, which set to rise by 5% each month until October, if Mexico does not act to stop the flow of refugees through the U.S. southern border.

Investors grew increasingly concerned that U.S. trade policy is used as a tool to gain leverage outside of economic sphere. "It is setting a dangerous precedent, which leave markets wondering what else the tariffs could be used for," said Kristina Hooper, a chief global strategist at Invesco.

After the announcement of tariffs, U.S. business groups and lawmakers expressed opposition to the plan, pointing to rising costs for U.S. consumers and diminished corporate profits. Trump's tariffs on Mexico in their current form would represent the largest imposition to date of such duties on a U.S. trading partner. According to Oxford Economics analysis, U.S. GDP is projected to decline 0.7% in 2020 if Trump's tariffs on Mexico are carried out to completion this fall.

Goldman Sachs said on Sunday that "escalating trade wars and weaker activity indicators have finally caught up with oil market sentiment."

Oil futures dropped almost 20% last month, negating most of the gains from the beginning of the year. "The magnitude and velocity of the move lower were further exacerbated by growing concerns over strong US production growth and rising inventories," Goldman said.

NYMEX July WTI futures settled $0.25 down at $53.25 barrels (bbl), while ICE August Brent crude finished the session at a $61.28 four-month spot low. NYMEX July RBOB futures settled 3.01 cents lower at $1.7413 gallon, paring a decline to a $1.7288 three-month spot low. NYMEX July ULSD futures settled down 3.39 cents at $1.8065 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com