Crude Oil Falls As U.S.-China Trade Friction Escalates

(RTTNews) - Crude oil has declined on Wednesday as investors turned cautious after the rapid escalation of friction between two of the world's largest economies, the U.S. and China, even while oversupply concerns are looming large.

WTI Crude Oil for November delivery was last seen trading down by $0.33 (or 0.56%) at $58.37 per barrel.

Last Thursday, China implemented sweeping restrictions on its rare earth exports to target their overseas use. These rare earth minerals are essential for the manufacturing of many goods, from everyday electronic items to fighter jets. China's moves were intended to assert its dominance in the sector.

In retaliation, U.S. President Donald Trump threatened to impose new 100% tariffs on Chinese imports, with the levy set to take effect from November 1.

China halted buying American soybeans after which Trump stated that the U.S. does not need to purchase cooking oil from China.

Both sides started also charging additional port fees on shipping vessels entering their ports, now casting doubts on the future of bilateral maritime trade.

On Tuesday, in a related move, China imposed sanctions on five U.S.-linked subsidiaries of South Korean shipbuilder, Hanwha Ocean.

This re-ignition of the trade war between the U.S. and China against the backdrop of current global economic slowdown could weaken the demand for oil and energy.

In yesterday's report, the International Energy Agency predicted that the oil market is set to face a surplus next year of nearly 4 million barrels. The report also stated that global oil supply in September was up by 5.6 million barrels per day from a year ago. The agency lowered its demand growth estimates to around 700,000 bpd for 2025 and 2026.

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 recent monthly report, the OPEC+ alliance maintained its forecasts for global oil demand to rise by 1.3 million bpd this year and at a little higher rate next year. The group has agreed to a modest increase in its November oil production, adding 137,000 bpd next month.

Meanwhile, Egypt has announced plans to drill 480 new exploratory oil wells, an ambitious $5.7 billion bet.

Iran is reportedly steadily increasing oil production to around 4.3 million bpd, despite U.S. and Israeli airstrikes and ongoing sanctions.

Another OPEC member, Iraq has launched a major marine pipeline project in its southern oil hub of Basra, intended to significantly expand the nation's crude export capacity. The 48-inch pipeline is designed to carry up to 2.4 million bpd with an initial operational capacity of 2 million bpd. Last month, Iraq resumed its oil exports to Turkey from the Kurdistan region.

Meanwhile in the U.S., the government shutdown has entered day 15 today.

U.S. Treasury Secretary Scott Bessent stated that the extended closure is costing around $15 billion a day to the U.S. economy. A shrinking economy weighs down on the oil prices as demand for energy reduces.

As the winter and heating season approaches, Russia continued its attacks on Ukraine's energy system, leading to severe outages in around seven regions of eastern-Ukraine. Trump has not expressed consent to supply Tomahawk missiles to Ukraine though Russia has fiercely warned the U.S. from doing so.

The first phase of the Gaza Peace Plan, proposed by Trump, is now complete with Israel and Hamas swapping prisoners for hostages. Even as the Gaza ceasefire holds, Hamas security forces are resorting to violence to restore control, though Trump has vowed to disarm the group. Israel has stated that the war will not end until Hamas has been dismantled.

On the monetary front, US Federal Reserve's Chair Jerome Powell yesterday highlighted a growing risk to the U.S. economy in the way of a sharp decrease in hiring and warned that the labor market is showing symptoms of cooling while unemployment is low. Powell also acknowledged that the central bank's assessments of the balance of risks has changed in recent months.

Powell's speech is seen as an indication that the Fed is likely on track to implement two more quarter-point interest rate cuts this year.

Analysts feel that in the near-term, oil price will respond synonymous to the developments in the U.S.-China relations, progress in the U.S. shutdown, and Fed rate cuts.