Oil prices dropped on Friday, with markets on edge ahead of a raft of import tariffs set to be imposed later by the world’s two biggest economies, the United States and China, threatening global growth.
International Brent crude oil futures fell 27 cents, or 0.4 percent, to $77.12 per barrel from their last close, while U.S. West Texas Intermediate (WTI) crude futures were down 13 cents, or 0.2 percent, at $72.81 per barrel.
A rise in U.S. crude oil inventories weighed on prices after stocks rose by 1.2 million barrels in the week to June 29, to 417.88 million barrels, according to the U.S. Energy Administration (EIA) on Thursday.
U.S. crude output stayed flat at 10.9 million barrels per day (bpd).
But looming large over markets is a trade dispute that could see tit-for-tat tariffs raised on Friday.
The United States has announced the introduction of tariffs on Chinese goods, planned from 12:01 a.m. Washington D.C. time (0401 GMT) on Friday.
China has said it would immediately retaliate with its own tariffs, and U.S. President Trump said on Thursday the United States may ultimately impose tariffs on more than a half-trillion dollars worth of Chinese goods, in what may become a fully blown trade war.
“Things will get worse before they get better on trade… between the U.S. and China,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
Beijing has said it may include a 25 percent tariff on U.S. crude imports, although it has not specified a date.
American crude shipments to China currently stand around 400,000 barrels per day (bpd), worth around $1 billion a month at current market prices.
A Chinese import tariff would make U.S. oil uncompetitive in China, forcing its refiners to seek alternative supplies in a tight market.
Energy consultancy FGE this week issued a stark warning of looming supply shortages due to U.S. sanctions against Iran, and because of disruptions elsewhere.
“Iran’s exports are some 2.7 million bpd, including condensate,” it noted.
FGE said the U.S. government may grant some waivers to allies that are particularly reliant on Iranian supplies, and that some Iranian oil would also be smuggled into markets.
Once U.S. sanctions are fully implemented, FGE estimated 1.7 to 2 million bpd of crude and condensate would be cut out of markets.
“At the same time, Venezuela… will lose another 400,000 bpd by year-end with production going to below 1 million bpd,” FGE said, adding that another 300,000 bpd of Libyan capacity was disrupted.
Although Saudi Arabia and Russia have said they would raise output to make up for disruptions, FGE said “there simply is not enough capacity to make up for Iran’s crude losses, plus Venezuela and Libya”, and warned of the possibility of oil prices rising to $100 per barrel.