NEW YORK: Oil prices plummeted more than 7per cent on Thursday to the lowest level in about seven weeks, after U.S. President Donald Trump said he would impose an additional 10per cent tariff on US$300 billion worth of Chinese imports starting Sept. 1.
A prolonged trade war between the world's two largest economies has triggered worries about oil demand.
Brent crude fell US$4.55, or 6.99per cent, to settle at US$60.50 a barrel, having dropped as low as US$60.02, the lowest since June 13. The international benchmark's decline on Thursday was its biggest daily percentage drop since February 2016.
U.S. West Texas Intermediate (WTI) crude ended the session down US$4.63, or 7.9per cent, at US$53.95 after sinking to a low of US$53.59, the lowest level since June 19. It was the biggest percentage decline since February 2015.
"Oil prices have fallen considerably today, done in by a one-two punch of the underwhelming Federal Reserve easing moves and the announcement by President Trump that more tariffs will be placed on imported Chinese goods," said John Kilduff, partner at Again Capital Management.
"The U.S.-China trade war has damaged the energy demand outlook greatly, already, and this will only add to those concerns," he said. "The trade war is clearly far from over."
Prices had fallen earlier on continued reaction to the Fed's policy decision on Wednesday. The Fed cut rates as expected, but market sentiment took a turn on remarks by Fed Chairman Jerome Powell that the move might not be the start of a lengthy series of cuts to shore up the economy against global economic weakness.
The Fed's less-dovish-than-expected message triggered a rebound in the dollar, sending the dollar index to a 26-month high of 98.93 on Thursday. A stronger dollar makes greenback-denominated oil more expensive for holders of other currencies. The dollar index turned negative after Trump's comments on tariffs.
Crude prices could see bearish momentum remain after breaking below critical support levels on Thursday, said Edward Moya, senior market analyst at OANDA in New York.
Oil's drop on Thursday came after a bigger-than-expected fall in U.S. inventories and a drop in OPEC production in July, typically bullish drivers for prices.
Inventories at the Cushing, Oklahoma, hub, the delivery point for U.S. crude futures, fell by 1.5 million barrels between Friday and Tuesday, traders said, citing data from market intelligence firm Genscape.
But U.S. output remained near a record, above 12 million barrels per day (bpd), making the country the biggest producer in the world.
Output in Texas, the largest producing state, rose by 16,000 bpd to 4.97 million bpd in May, a record high, U.S. government data showed.
Graphic: U.S. crude inventories, weekly changes since 2017 - https://tmsnrt.rs/2y7mC9g
"The market was already wobbly on reports by analysts that production would increase faster than demand by 1 million barrels per day in the new year. That kept the oil market under pressure even when the stock market went up," said Phil Flynn, analyst at Price Futures Group in Chicago.
"But the final straw for the oil market was when Trump imposed these additional tariffs and caught the market by surprise. It is raising concerns that the tariffs will slow economic growth and cause a drop in oil demand."
U.S. manufacturing activity slowed to a near three-year low in July and a measure of new orders received by factories rebounded slightly, as the negative effects of the U.S.-Chinese trade war took their toll.
Other data on Thursday showed the number of Americans filing for unemployment benefits rose last week, while construction spending fell in June as investment in private construction projects tumbled to its lowest level in 1-1/2 years.
Total U.S. oil demand in May fell 98,000 bpd to 20.26 million bpd, data showed on Thursday.
OPEC and partners including Russia, an alliance known as OPEC+, have been curbing output this year to support the market. In July, OPEC production revisited a 2011 low, helped by a further cut by Saudi Arabia, a Reuters survey showed.
(Reporting by Devika Krishna Kumar; Additional reporting by Scott DiSavino in New York, Alex Lawler in London, Aaron Sheldrick; Editing by Steve Orlofsky, Jonathan Oatis)