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Oil Fell on Global Growth Concerns as US-China Trade War Escalates

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Oil prices fell

Oil prices tumbled on Monday after the Chinese government announced it would impose tariffs on US imported goods worth $60 billion starting June 1. The latest announcement by Chinese officials is a retaliation measure after the US government raised tariff rates to 25% from 10% on $200 billion worth of Chinese goods.

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The escalation of the trade war between the world’s two largest economies poses risks of a slowdown in global growth. Sluggish global economic growth would be a major headwind for crude oil demand. Brent and WTI (West Texas Intermediate) crude oil futures both fell nearly 1% on May 13. Brent oil futures are currently trading near $71 a barrel, while WTI oil futures are trading slightly above $61.

Rising trade tensions are already showing their impact on the global financial markets as stock markets around the world closed in the red zone yesterday. The US market including the Dow Jones, the NASDAQ, and the S&P 500 lost 2.4%, 3.4%, and 2.4%, respectively, in market capitalization.

Big US oil companies ExxonMobil (XOM), Chevron (CVX), ConocoPhillips (COP), and EOG Resources (EOG) fell 1.1%, 1.3%, 1.2%, and 1.6%, respectively. The iShares U.S. Energy ETF (IYE) declined 1.8% yesterday. The ETF tracks the performance of the US energy companies in the Dow Jones.

US-China trade war

Since he became president, Donald Trump has been trying to lower the US trade deficit with China, which reached ~$378 billion in 2018. He is also pressuring China to make specific structural trade changes.

Trump is demanding that China halt intellectual property theft and restrain from giving special subsidies to its state-owned companies. Also, Trump wants China to stop pressuring US companies to share technology to do business in the country.

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