Oil fell in tandem with equities as renewed U.S.-China tensions rattled markets already reeling from uncertainty over a new round of economic stimulus.
Futures declined as much as 1.8% in New York, paring a weekly advance. U.S. President Donald Trump’s latest attack on Chinese tech companies stoked tensions between the two countries, weighing on risk assets. Investors are also concerned that lawmakers won’t be able to agree on a new round of economic stimulus, indicating a long road ahead for a demand recovery.
With weaker equities and conflict between the U.S. and China, “it would at least for now hinder any kind of bullish tilt,” said Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC. “You’ve got a little bit of a bid in the dollar,” putting further pressure on futures as well.
The Bloomberg Dollar Spot Index rose as much as 0.8% on Friday, reducing the appeal for commodities priced in the greenback.
Crude is testing the upper bound of its recent trading range after hitting a five-month high this week amid shrinking U.S. stockpiles.
But taking the wind out of any sustained breakout rally is the spotty recovery in oil consumption, with crude imports into China shrinking in July.
“Traders are taking a wait-and-see approach,” said Andrew Lebow, senior partner at Commodity Research Group. “There are a lot of fairly large countervailing forces on the market and generally, traders at this point aren’t willing to place big bets.”
West Texas Intermediate for September delivery lost 57 cents to $41.38 a barrel at 11:20 a.m. in New York. Brent for October settlement fell 55 cents to $44.54 a barrel.
In physical markets, the discount on Bakken crude for delivery at Clearbrook, Minnesota, narrowed to 5 cents below WTI earlier this week, its smallest discount since May. Light Louisiana Sweet rose to $1.70 above WTI earlier this week, its strongest level in nearly two weeks, but pulled back slightly in recent sessions.
A fresh round of stimulus in the U.S. could boost sentiment over the demand outlook, but negotiations on a virus relief package ended Thursday night with the White House and Democrats making no headway on resolving their biggest difference. With lawmakers at a stalemate, Trump said Thursday he is ready to sign orders extending enhanced unemployment benefits for the jobless and imposing a payroll tax holiday for employers and workers.
Meanwhile, OPEC+ is returning supply to the market this month as it tapers its record output curbs, but habitual quota cheat Iraq has promised to make deeper cuts following a call with Saudi Arabia on Thursday. Oil Minister Ihsan Abdul Jabbar pledged that Iraq will cut output by an extra 400,000 barrels a day in August and September, on top of a previous commitment to slash 850,000 barrels a day in each month.