Oil prices drop amid China-US trade tensions

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A sharp decline in oil prices Wednesday saw US futures drop to a seven-week low, as trade tensions, Iran sanctions and an overall drop in demand weighed on crude.

West Texan Intermediate and Brent Crude futures both fell by 3.2 percent, with the former hitting its lowest point in seven weeks. The slump came after China announced plans to impose tariffs of 25 percent on 16 billion US dollars’ worth of US goods, including petroleum products such as diesel and fuel oils.

The Ministry of Commerce on Friday announced that China was ready to impose tariffs on 60 billion US dollars’ worth of US goods in response to threats from the US. That list of goods included liquefied natural gas (LNG) for the first time, in a sign that China would begin targeting US energy exports.

Chinese imports of US oil have already fallen significantly in recent months, with Goldman Sachs analysts estimating a 70-percent drop from April through June.

Official data published Wednesday showed that Chinese oil imports increased slightly in July after falling in the prior two months; however, last month’s imports figures were still the third-lowest of the year.

Concerns about falling prices will be felt keenly in Iran, which was placed under US sanctions earlier this week, and faces even tougher restrictions in November as Washington plans to block Tehran’s oil exports.

Earlier on Wednesday, Iranian Oil Minister Bijan Zanganeh called for an extraordinary meeting of the Organization of the Petroleum Exporting Countries (OPEC), over concerns that oil producing countries were adjusting output beyond targets agreed by OPEC.

After lengthy discussions, OPEC agreed in June to raise output by around one million barrels per day. However, Zanganeh has accused Saudi Arabia of looking to boost its output above stated targets, with Abu Dhabi claiming it is looking to raise production to make up for shortfalls among other members.

Last month, Iranian state media quoted a letter from Zanganeh to his Saudi Arabian counterpart as saying OPEC’s decision to raise production “neither warrants member countries the right to exceed their production level above the allocated production level decided... nor the right to redistribute the unfulfilled production adjustment commitments among member countries.”