Oil prices slip as prospect of renewed trade war looms large

The US slapped an additional 10% tax on $300bn worth of Chinese imports

Brent is teetering close to $28.94 level seen in January 2016, which prompted Saudi Arabia and Russia to form an alliance. Reuters

Oil prices resumed its decline as markets began trading following the latest US tariffs on China, which darkened outlook for the commodity near-term.

Brent was trading at $61.12 per barrel at 1.38pm UAE time as markets weighed the prospect of another protracted trade war between the two largest economies.

Tensions in the Middle East, which were on the rise on Sunday following the seizure of another vessel by Iran, seemed to have little bearing on the movement of prices.

West Texas Intermediate, the benchmark tracking North American crude, plunged to its worst performance in a single day in four and a half years on Thursday after the White House announced 10 per cent tariffs on $300 billion (Dh1.1 trillion) worth of imports from China. Brent, the benchmark for light, sweet crude, lost 7 per cent of its value and plunged to $60.5 before recovering to $61.89 the following day.

US President Donald Trump's decision to levy an additional 10 per cent tax on Chinese goods comes on top of earlier tariffs of 25 per cent on them. The move, which is likely retaliated by Beijing, caused the renminbi to slump past 7 yuan per dollar for the first time in 11 years.

A standstill in trade talks between Washington and Beijing led to a rout in commodities, with Brent performing in a tight band between $60 and $67 per barrel since March. Geopolitical tensions in the Middle East following attacks and seizures of tankers since May along the Strait of Hormuz, through which a third of the world's oil transits, barely moved the needle on prices. Prices climbed to $67.01 following the US military plans to respond to the downing of one of its drones by Iran, but eased after Washington called off strikes.

The latest round of tariffs by the US has stoked fears of a continued lull in the oil markets. "Oil demand has disappointed in 2019 due to weaker economic activities, unfavourable weather and trade tensions,” Goldman Sachs said in a report.

On Sunday, Iran's Islamic Revolutionary Guard announced the seizure of another tanker in the Arabian Gulf for abetting fuel smuggling in the region. The Iranian state news agency ISNA, which reported the seizure, did not disclose details on the identity of the vessel.

On Monday, the country's Foreign Minister Mohammed Zarif said Iran would press charges against the British-flagged Stena Impero seized by the IRGC last month, accusing the UK of collaborating with the US on what it called "economic terrorism".