Oil falls, U.S. inventories jump as trade war risks persist

LONDON (Bloomberg) -- Oil fell to the lowest in more than a week amid a surprise jump in U.S. crude inventories and an escalating trade dispute between the U.S. and China.

Futures in New York fell as much as 1.4% after a 2% decline Tuesday. The American Petroleum Institute was said to report U.S. stockpiles rose 5.59 MMbbl last week. Most analysts surveyed by Bloomberg forecast government data due Wednesday will show an inventory loss. Meanwhile, the U.S. will propose more than doubling its planned tariffs on $200 billion of Chinese imports, according to three people familiar with the internal deliberations.

Oil slumped more than 7% in July, the biggest monthly loss in two years, on concern that trade tensions between the world’s two largest economies will imperil growth and sap global energy demand. Uncertainties remain whether the latest threats from U.S. President Donald Trump will ratchet up pressure on Beijing to return to the negotiating table or increase conflict further that could lead to a full-blown trade war.

“Oil bulls have been left battered and bruised,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. in London. “The rebalancing paused abruptly last week” as inventories likely increased, while “downside risks for the global economy and therefore oil demand growth prospects remained alive and well.”

West Texas Intermediate crude for September delivery fell as much as $1.03 to $67.73/bbl on the New York Mercantile Exchange, and traded at $67.74 at 1:33 p.m. in London. The contract dropped $1.37 to $68.76 on Tuesday. Total volume traded was about 35% below the 100-day average.

Brent for October settlement fell as much as $1.41, or 1.9%, to $72.80/bbl on the London-based ICE Futures Europe exchange. The September contract declined 72 cents to expire at $74.25 on Tuesday. The global benchmark traded at a $6.23 premium to October WTI.

The U.S. imposed 25% tariffs on $34 billion of Chinese products in early July, and the review period on another $16 billion of imports ends Wednesday. Trump had threatened an additional $200 billion with levies of 10%, a level the administration may raise to 25% in a Federal Register notice in coming days, one of the people said.

At the same time, representatives of U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He are having private conversations as they look for ways to re-engage in negotiations in a bid to avert a full-fledged trade war, two people familiar with the effort said. Talks to resolve the dispute had been stalled for weeks, with both sides refusing to budge.

While the API forecast a rise in American crude stockpiles, the median estimate of analysts surveyed by Bloomberg estimated that they probably declined by 3 MMbbl last week. All but one of the analysts surveyed expected a drop. If confirmed by the Energy Information Administration’s data later in the day, it would be the third decline in four weeks.