WASHINGTON (DTN) -- Heading into the three-day Memorial Day weekend, oil futures on the New York Mercantile Exchange and Brent crude on Intercontinental Exchange moved sharply lower Friday, pressured by escalating geopolitical tensions in the Asia-Pacific region after China announced plans to tighten its security grip over Hong Kong, with markets bracing for a potential wave of protests and the response from the United States.
In early trading, West Texas Intermediate July futures dropped back $2.30 or 6% to trade near $31.62, retreating from a $34.66 10-week high on the spot continuous chart. The international crude benchmark Brent July contract shed $1.95 to trade at $34 per barrel (bbl), having traded at a $36.98 10-week spot high Thursday.
NYMEX June ULSD futures declined 4.17 cents to near $0.9473 gallon, falling further from this week's five-week spot high at $1.0286 gallon. NYMEX June RBOB futures fell 3.82 cents to trade near $1.0069 gallon, continuing a retreat from Wednesday's 10-week spot high $1.0888 gallon. Product futures are under selling pressure from a weekly buildup in gasoline and distillate fuel stocks, with the economy expected to contract sharply in the second quarter amid rising unemployment and a battered manufacturing activity implying weak demand for the fuels over the coming weeks.
Chinese Communist Party proposed a new security law on Friday to increase its oversight of the semiautonomous region of Hong Kong, triggering harsh criticism from the United States and western European countries that have traditionally defended the independence of the former British colony. The new bill has not yet been revealed but is likely to include a ban on secession, foreign interference and protests that the party indicates is aimed at toppling the central government in Beijing.
U.S. President Donald J. Trump have previously said the power grab in Hong Kong would be met with a "strong response from the United States." Wire services report U.S. Senators plan to introduce legislation to impose sanctions on Chinese officials and banks that do business with entities found violating Hong Kong's independence, with the measure having bipartisan support.
The escalation in tensions follow weeks of back-and-forth barbs between Trump and Chinese President Xi Jinping on the handling of the coronavirus outbreak.
Trump Administration raised stakes this week by blaming China's incompetence on "The Mass Worldwide killing." In response, Beijing suggested that the real source of the pandemic might be the United States that has failed to meet the challenge of a spreading pandemic.
Markets were further unnerved after China abandoned setting a target for its economic growth, the first time since established in 1990, with gross domestic growth contracting 6.8% in the first quarter as a result of ongoing trade and investment uncertainty linked to the global pandemic. Economists suggest post-pandemic recovery in China is highly uneven across industries and regions, with North-Eastern province of Jilin still under quarantine.
Liubov Georges, 1.646.359.4088, firstname.lastname@example.org, www.dtn.com
(c) Copyright 2020 DTN, LLC. All rights reserved.