Despite a surprise crude oil inventory draw that the American Petroleum Institute (API) reported on Tuesday, oil prices fell by 2 percent early on Wednesday as the trade war between the United States and China continues to escalate and to weigh on both oil and equities.
With China and the U.S. announcing new tariffs on the other’s products by the day, and investors seeking asset classes safer than equities and oil, the market could “look past” any U.S. crude oil inventory data, Harry Tchilinguirian, global head of commodity markets strategy at BNP Paribas, told MarketWatch on Wednesday.
“There’s a sea of red on the equity screens, and oil, as a risk asset, is falling as well,” he said.
This week, China imposed tariffs on 128 U.S. products, including steel and alloy pipe for oil and gas, effective Monday, in a retaliatory move after the U.S. imposed tariffs on imported steel and aluminum.
On Tuesday, the Office of the U.S. Trade Representative (USTR) published a proposed list of products imported from China that could be subject to additional tariffs, “as part of the U.S. response to China’s unfair trade practices related to the forced transfer of U.S. technology and intellectual property.”
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The proposed tariffs include products from sectors such as information technology, communication technology, robotics, and aerospace. China retaliated to this by announcing new tariffs on 106 U.S. products, including cars, chemicals, and soy.
U.S. President Donald Trump tweeted early Wednesday “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!”.
Analysts and market participants fear that global oil demand growth in emerging markets could suffer significantly from a trade war, and sentiment toward oil could really sour if more investors flee to safer assets.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.