Oil markets volatile as trade conflict between U.S. and China escalates

Oil Prices Up on Weak US Crude Inventory

U.S. West Texas Intermediate (WTI) futures CLc1 were down 15 cents, or 0.2 percent, at $72.79.

Looming larger over markets is the U.S./China trade dispute. Brent, the worldwide benchmark, is now trading at around $77 a barrel.

Meanwhile, Chinese state media has unleashed a full-on propaganda blitzkrieg, slamming Trump's government as a "gang of hoodlums", with officials vowing retaliation, while the chairman of Sinochem just become China's official leader of the anti-Trump resistance, quoting Michelle Obama's famous slogan "when they go low, we go high".

The US ships about 400,000 barrels a day of crude to China, worth $1bn a month at current prices.

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On Friday, the U.S. tariffs on $34 billion worth of Chinese goods were implemented. While OPEC is facing mounting pressure from Trump to do more, America's sanctions on group members Iran and Venezuela are adding uncertainties, just as US tariffs on Chinese goods kick in on Friday.

As part of a wave of retaliation for Friday's U.S. tariffs, China has threatened a 25 percent duty on imports of USA crude.

USA investment bank Jefferies said on Friday it expected “a drop in Iranian exports well in excess of 1 million bpd” due to the US sanctions.

He said his refinery had cancelled USA crude orders and would switch to Middle East or West African supplies instead.

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The report said Hojjat al-Islam Mojtaba Zolnour, a hardline member of Iran's parliament, had made the allegation in an interview with a local newspaper.

A Chinese import tariff would make US oil uncompetitive in China, forcing its refiners to seek alternative supplies elsewhere.

Oil prices are likely to be weighed down by the trade conflict as investors are concerned about the impact of the tariffs and counter tariffs on global economic growth, analysts said. "They can import more, but can they process it?" By some estimates, about 1.7 to 2 million bpd of crude and condensate would be cut out of markets once the sanctions are implemented.

Oil prices gained on Monday following the data last week that showed United States crude inventories slumped to their lowest in as long as three years.

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China responded promptly and slapped duties on the same amount of value unto United States products. The Petroleum Association of Japan previously warned refiners will have to stop loading Iranian crude oil from October if Tokyo doesn't win an exemption on US-Iran sanctions. However, if the ongoing pipeline bottleneck in the Permian is not resolved soon, said solace will prove to be short-lived.

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