(Bloomberg) — Oil edged lower as the escalating global trade war overshadowed concerns about fresh US efforts to clamp down on Russian energy exports.
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West Texas Intermediate crept lower to trade near $68 a barrel, after earlier rising as much as 1.8%. Trump threatened 30% tariffs on goods from the European Union and Mexico, hurting investors’ appetite for risk and the outlook for energy demand. Equities weakened while the dollar edged higher, making commodities priced in the currency less attractive.
The rocky opening for US equity markets deflated an earlier rally for crude driven by President Donald Trump’s promise of a “major statement” on Russia on Monday, which traders had speculated would include new sanctions targeting the country’s oil. The president told reporters in the US on Sunday that Washington would send Kyiv more weapons, an apparent shift to a more confrontational stance toward Russia.
A bullish announcement by the Trump administration may catalyze trend-following commodity traders known as CTAs to buy up to 20% of their maximum size, said Daniel Ghali, a commodity strategist at TD Securities.
“CTAs are set to buy back some of their crude oil longs this session, amid fears of further sanctions on Russia,” he said.
Trump unleashed a barrage of tariff demand letters containing some of the highest tax rates yet on major US trading partners last week. The attacks revived concerns that demand would deteriorate and added to widespread expectations of a glut later this year, leading hedge funds to turn bearish on oil at the fast pace since February last week.
In the near-term, though, demand appears to be holding. China ended the first half of the year with a record trade surplus, with factories riding out the tariff roller-coaster. The trade data also showed that crude imports have risen so far this year. The country’s purchases of Iranian barrels jumped in June, according to data from Vortexa.
Oil is still almost 5% lower this year as traders and investors balance geopolitical tensions in the Middle East, which stoked concern over supplies, with the US-led trade war. OPEC+ is relaxing supply curbs, which could lead to an oversupply in the second half of the year.
Traders are now looking ahead to Tuesday’s US consumer price index data for clues on the path forward for monetary tightening.
–With assistance from Catherine Cartier.