WASHINGTON (DTN) -- After paring losses that followed China's announcement of retaliatory tariffs on $75 billion worth of U.S. imports, New York Mercantile Exchange nearest delivery oil futures and Intercontinental Exchange Brent settled at one- and two-week lows on a weakening U.S. dollar and reassuring comments of further economic stimulus from Federal Reserve Chairman Jerome Powell.
Friday's lower session comes after China upped the ante in a more than yearlong spat with the United States by raising tariffs on $75 billion worth of products from the U. S., including imports of crude oil. West Texas Intermediate plunged to a two-week low on reports of the additional 5% tariff on all shipments of U.S. crude into China, exacerbating fears that a protracted trade war is now spilling into the energy sector.
According to market intelligence firm Kpler, U.S. crude exports to Asia saw a weaker flow of 892,000 barrels per day (bpd) in August, down 360,000 from last month, with most of the decline attributed to a slowdown in sales to China.
Following the announcement, U.S. President Donald Trump threatened further actions against Beijing and said he had ordered U.S. firms to look for alternatives to China.
Friday's political volatility triggered a sharp selloff in global equites, pressured the U.S. dollar and caused yet another inversion in the 2- and 10-year yield bond curve, intensifying fears of recession.
Some analysts believe that a sharp slowdown in the world's economy could lower global oil demand growth by 260,000 bpd in 2019 to 930,000 bpd and by 750,000 bpd in 2020 to 660,000 bpd.
Powell attempted to reassure markets Friday at the Federal Reserve's annual conference in Jackson Hole, Wyoming, but his comments highlighted the limits of what the central bank could do against the headwinds of the global trade war.
Powell vowed to "act as appropriate" to support economic expansion while acknowledging that trade tariffs are causing growth to slow.
"While monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade," he said in prepared remarks.
Less than an hour after the speech, President Trump blasted Powell on Twitter, referring to him as "our enemy."
Oil futures began trending lower at midweek after government data showed ongoing restocking in commercial oil supply, with total U.S. inventories 5.5% above the five-year average, while peak demand for gasoline is coming to an end.
EIA data showed domestic crude output stalled near a record high at 12.3 million bpd for the last three weeks, and could turn lower. Baker Hughes reported Friday afternoon a sizable drop in the number of oil rigs deployed in the United States, down 16 to an 18-month low at 754 during the week ended Friday. The U.S. oil-rig count is down 106 against year ago, with 131 rigs taken out of service year to date, 39 of which were pulled from the fields in the third quarter, indicating a well-established downtrend in domestic drilling activity.
NYMEX October West Texas Intermediate futures plunged $1.18 to settle at $54.17 barrel (bbl), with the ICE October Brent contract dropping $0.58 to $59.34 bbl. NYMEX September RBOB futures finished the session 2.47 cents lower at $1.6428 gallon, and the September ULSD contract fell 2.57 cents to settle at $1.8156 gallon.
The U.S. dollar plunged 0.55% in index trading late Friday afternoon to a one-week low at 97.530, lending support to WTI futures.
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