Oil prices slipped further on Wednesday, extending recent heavy losses as deepening Sino-U.S. trade tensions weighed on the outlook for the global economy and energy demand.
Brent prices have plunged more than 9% over the past week after U.S. President Donald Trump said he would slap a 10% tariff on a further $300 billion in Chinese imports from Sept. 1, sending global equity markets into a tailspin.
“The market continues to grow more uncertain about the demand outlook given the deterioration of trade talks between China and the U.S.,” ING analysts said in a note.
The bank lowered its 2019 price outlook, mostly because of demand concerns, forecasting that global oil supplies will exceed consumption in the first half of next year.
Trump on Tuesday dismissed fears that the trade row with China could be drawn out further. His comments failed to prevent shares in Asia from falling for an eighth straight session on Wednesday.
“The most significant outcome of the ramp-up in tariff measures will be through increased economic and trade uncertainties, negatively impacting physical oil and gas demand and market sentiment,” Fitch Solutions said in a note.
At the same time, geopolitical tensions in the Middle East remain high after Iran seized a number of tankers in recent weeks in the Strait of Hormuz, a major choke point for oil shipments.
Saudi Arabia Energy Minister Khalid Al-Falih and U.S. Energy Secretary Rick Perry on Tuesday expressed mutual concern over threats targeting freedom of maritime traffic in the Arabian Gulf.
“There are concerns that an event could occur at any moment … the risk might be shifting to the upside in the near-term for oil contracts,” said Michael McCarthy, chief market strategist at CMC Markets.
Elsewhere, data indicating a larger than expected drop in U.S. crude stocks offered some support to oil prices after several weeks of large draws on inventories.
Official data from the government’s Energy Information Administration (EIA) is due on Wednesday.
The U.S. Energy Information Administration on Tuesday lowered its domestic oil growth forecasts for the year after Hurricane Barry disrupted Gulf of Mexico output in July. Production is set to rise by 1.28 million barrels per day (bpd) to 12.27 million bpd this year.