Brent crude suffers biggest price drop in two years

Marco Green
July 12, 2018

Oil futures plunged on Wednesday as the market remained fixed on supplies resuming from Libya and rising trade tensions between the USA and China.

A pump jack is seen at sunrise near Bakersfield, California October 14, 2014.

Brent crude LCOc1 fell $2.51 to $76.30 a barrel by 12:27 p.m. EDT (1627 GMT). The decline was the largest one-day move on a percentage basis since February 9, 2016.

The decline in overall inventories was partially due to a fall-off in stocks at the Cushing, Oklahoma, delivery hub for USA crude futures, which were down by 2.1 million barrels. US light crude, supported by a tight North American market, was down 65 cents at $73.46 a barrel. Higher gas prices can leave USA households with less money to spend on other products.

The selling pressure intensified as trade tensions between the US and China raised concerns about demand.

Washington yesterday threatened to impose new tariffs on another Dollars 200 billion in Chinese goods and Beijing vowed to retaliate.

"Escalating trade tensions between the USA and China has prompted risk aversion in today's trading session, which is evident in oil prices", said Abhishek Kumar, senior energy analyst at Interfax Energy in London.

Adding to the bearish mood were signs of a possible relaxation of US sanctions on Iranian crude exports. A stronger dollar can weaken dollar-denominated commodities, like crude.

"The trade concerns have bitten today and the reason is that this is above and beyond what the market was expecting", said Michael McCarthy, chief markets strategist at CMC Markets in Sydney. "If these tariffs are introduced there will be an impact on global growth and demand".

Wednesday's sell-off started after the announcement by Libya's National Oil Corp that it would reopen four export terminals that had been closed since late June, shutting most of the country's oil output.

"Libyan relief changes the conversation about spare capacity", said John Kilduff, a partner at Again Capital Management.

Crude oil is seeing declines with WTI knocking down to 73.40 as trade concerns take oil down the charts after a brief bullish period.

President Trump has been pressuring the Organization of the Petroleum Exporting Countries, or OPEC, to increase production to cool off oil prices, which recently hit the highest levels in over three years.

Washington had earlier told countries they must halt all imports of Iranian oil from November 4 or face US financial measures, with no exemptions.

The falls came despite a U.S. government report that American crude oil stockpiles fell by more than 12 million barrels last week and are about 4% lower than average for this time of year.

US oil prices jumped on the news, but later retreated, though were still above the day's lows.

Other reports by Click Lancashire

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