(RTTNews) – Crude oil fell on Wednesday as investors turned cautious after tensions escalated between the world’s two largest economies, the US and China, while concerns over oversupply persist.
WTI crude oil for November delivery was last seen trading at $58.37 per barrel, down $0.33 (or 0.56%).
Last Thursday, China imposed sweeping sanctions on its rare earth exports to target their overseas use. These rare earth minerals are essential for the manufacturing of many items ranging from everyday electronic items to fighter aircraft. China’s steps were aimed at establishing its dominance in the region.
In retaliation, US President Donald Trump threatened to impose new 100% tariffs on Chinese imports, with the levy taking effect on November 1.
China stopped buying American soybeans, after which Trump said that America does not want to buy cooking oil from China.
Both sides also started charging additional port charges on shipping vessels entering their ports, now raising doubts over the future of bilateral maritime trade.
On Tuesday, in a related move, China imposed sanctions on five US-linked subsidiaries of South Korean shipbuilder, Hanwha Ocean.
The resumption of trade war between the US and China against the backdrop of the current global economic slowdown could weaken demand for oil and energy.
In yesterday’s report, the International Energy Agency predicted that the oil market is set to face a surplus of about 4 million barrels next year. The report also said global oil supply in September was 5.6 million barrels a day higher than a year earlier. The agency cut its demand growth forecast for 2025 and 2026 to about 700,000 bpd.
However, OPEC Secretary General Haitham Al Ghais differed from the IEA’s views and defended the need to increase production, citing growing economies, rising populations and urbanization.
In its latest monthly report, the OPEC+ alliance maintained its forecast for global oil demand to grow by 1.3 million bpd this year and at a slightly higher rate next year. The group agreed to a modest increase in its November oil output by 137,000 barrels per day next month.
Meanwhile, Egypt has announced plans to drill 480 new exploratory oil wells, an ambitious $5.7 billion bet.
Iran reportedly continues to increase oil production to about 4.3 million bpd, despite US and Israeli airstrikes and ongoing sanctions.
Iraq, another OPEC member, has launched a major undersea pipeline project in its southern oil hub Basra, aimed at significantly expanding the country’s crude export capacity. The 48-inch pipeline is designed to carry up to 2.4 million bpd with an initial operating capacity of 2 million bpd. Last month, Iraq resumed its oil exports from the Kurdistan region to Turkey.
Meanwhile, the government shutdown in America has entered its 15th day today.
US Treasury Secretary Scott Besant said the extended closure was costing the US economy about $15 billion a day. A shrinking economy impacts oil prices as demand for energy decreases.
As the winter and summer seasons approach, Russia continues its attacks on Ukraine’s energy system, causing severe power outages in approximately seven regions of eastern Ukraine. Trump has not agreed to supply Tomahawk missiles to Ukraine, although Russia has strongly warned the US against doing so.
The first phase of Trump’s proposed Gaza peace plan has now been completed with Israel and Hamas exchanging prisoners for hostages. Despite a ceasefire in Gaza, Hamas security forces are resorting to violence to restore control, although Trump has vowed to disarm the group. Israel has said that the war will not end until Hamas is eliminated.
On the monetary front, US Federal Reserve Chairman Jerome Powell yesterday highlighted the growing risks to the US economy due to a sharp decline in hiring and warned that the labor market is showing signs of cooling while unemployment remains low. Powell also acknowledged that the central bank’s assessment of the balance of risks has changed in recent months.
Powell’s speech is seen as a sign that the Fed is on track to implement two more quarter-point interest rate cuts this year.
Analysts believe that in the near term, oil prices will be synonymous with developments in US-China relations, progress in the US shutdown and Fed rate cuts.
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