Oil Slumps as Trade War Fears Prompt Investors to Spurn Risks

(Bloomberg) -- Crude slid the most in almost two months as fears of a trade war prompted investors to dump commodities and other risky assets.

Futures fell 3 percent on Monday in New York. U.S. stocks declined as China imposed retaliatory tariffs on U.S. goods, the latest move in an escalating trade dispute between the world's largest economies. At the same time, supply concerns that prompted hedge funds to increase bullish bets on crude have fizzled.

“The broader markets are struggling,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. In addition, the oil market “is super long at the moment, so without a catalyst it will be hard for that length to stick around.”

Oil also fell as trading volumes lagged normal levels by about 20 percent in the first trading session after the Easter holiday weekend.

West Texas Intermediate crude has started April on shaky ground following March's 5.4 percent gain. OPEC's efforts to curb output have been undercut by surging U.S. production. A Kuwaiti oil undersecretary told the state-run news agency he doesn't expect crude to dip below $55 a barrel.

WTI for May delivery dropped $1.93 to settle at $63.01 a barrel on the New York Mercantile Exchange, the lowest in two weeks. No futures were traded in New York or London on Friday due to the Good Friday holiday.

Trade Talk

Brent for June settlement fell $1.70 to end the session at $67.64 on the London-based ICE Futures Europe exchange. The global benchmark traded at a $4.65 premium to June WTI.

The U.S. didn't respond to China's March 26 request for consultation on Washington's steel and aluminum tariffs, the Asian country's Commerce Ministry said in a statement Monday, adding that officials have widespread public support for tougher measures and repeating Beijing's stance that disputes should be resolved with dialogue.

“The retaliation from China is concerning for energy markets,” Michael Loewen, a commodities strategist at Scotiabank in Toronto, said. “If a trade war occurs between these countries and it affects demand growth from emerging markets, that could be a big problem.”

In the U.S., the oil rig count declined by the most since November last week, Baker Hughes data showed. Still, nationwide crude production has remained above 10 million barrels a day since early February. Crude inventories in Cushing, Oklahoma, increased 2.4 million barrels last week, according to a forecast compiled by Bloomberg.

“Expect choppy trading in a thin market coming out of the long holiday weekend,” said Michael Tran, a commodities strategist with RBC Capital Markets in New York.

Oil-market news:

• Gasoline futures fell 2.6 percent to settle at $1.9661 a gallon.
• Money managers increased their bullish ICE Brent crude oil bets by 48,566 net-long positions to 615,660, the highest on record, weekly ICE Futures Europe data on futures and options show.
• Russia is committed to ensuring a re-balancing of the global oil market, Energy Minister Alexander Novak said Monday in a statement.

--With assistance from Tsuyoshi Inajima Heesu Lee and Mahmoud Habboush

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Joe Carroll, Carlos Caminada

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