Oil prices fell nearly one percent on Tuesday as an escalating trade dispute between the United States and China triggered sharp selloffs in many global markets.
Crude was also weighed down by expectations that producer cartel OPEC and key ally Russia will gradually increase output.
The United States and China are threatening punitive tariffs on each other’s exports, which could include oil supplies, putting pressure on shares markets.
Oil traders are closely watching a threat by China to react to U.S. tariffs by putting a 25 percent duty on U.S. crude oil imports, which have been surging since 2017 to a value of almost $1 billion per month.
“The tariff war between the US and China is showing signs of escalating,” said Sukrit Vijayakar, director of energy oil consultancy Trifecta.
“China recently hinted that it may levy tariffs on (US) crude imports as well. This could make a huge dent in the US bid to export oil,” he added.
Energy consultancy Wood Mackenzie said the United States “would find it hard to find an alternative market that is as big as China”. It said China takes around 20 percent of all US crude exports.
The Organisation of the Petroleum Exporting Countries (OPEC) together with a group of non-OPEC producers including Russia started withholding oil supplies in 2017 to prop up prices.
Following a sharp increase in crude prices from their sub-$30 per barrel lows in 2016, the group on June 22 will meet in Vienna to discuss forward policy.
Greg McKenna, chief market strategist at futures brokerage AxiTrader said there would likely be oil price volatility in the week ahead of the meeting.
“OPEC is fractured or fracturing,” McKenna said, as Iran, Venezuela, and Iraq “seek to veto the production increase”.
“We could be seeing the long-term relationship between the Saudis and Russia pushing OPEC into second place,” he added.
Rob Thummel, Managing Director at asset management firm Tortoise said he “would recommend a small increase in production as the global oil market is potentially vulnerable to an oil price spike” due to low inventories.
“We believe that OPEC will act like a central bank going forward, raising and lowering production as necessary with an objective of keeping global oil inventories at normal, 5-year levels,” Thummel said.