OIL FUTURES: Crude falls over 3% on Beijing’s retaliatory tariffs against US

Crude oil futures were lower by over 3% day over a day in mid-afternoon Asian trade on April 7 as global trade conflicts escalated following China's announcement of an additional 34% tariff on all US imports effective April 10 in retaliation to US President Donald Trump's reciprocal tariffs.

At 4.30 pm Singapore time (0826 GMT), the ICE June Brent futures contract was down $2.24/b (3.42%) from the previous close at $63.34/b, while the NYMEX May light sweet crude contract was down $2.23/b (3.60%) from the previous close at $59.76/b.

"Oil prices have had their worst week since October 2023, with risk assets getting hit by US President Donald Trump's reciprocal tariffs and the retaliation we have started to see towards them," ING's Head of Commodities Strategy Warren Patterson and Commodities Strategist Ewa Manthey said.

China retaliated on April 4 with 34% tariffs on all imports from the US starting April 10, further escalating trade tensions as the global economy crumbles.

"Despite many countries exercising restrain on reciprocal tariffs, in hopes of negotiation with the US, Beijing is not taking this lying down. Tit-for-tat tariffs of 34% on the US [...] is a marked shift in Beijing's stance, which makes it clear China won't fold," Vishnu Varathan, managing director at Mizuho said.

The matching 34% tariffs, alongside a ban of rare earth exports to the US and increased scrutiny on US firms, appears to be a confrontational move in which Beijing is similarly seeking leverage in negotiations, analysts added.

"This escalates US-China trade antagonism, hobbling hopes of defusing terse trade conditions and heightened uncertainty in the near-term. Barring an unscheduled phone call between Presidents Xi and Trump suspending (or deferring) reciprocal tariffs, US-China antagonism and associated economic risks are likely to mount," Varathan added.

Varathan then warned to brace for a US-China confrontation, positing Trump's tariffs as an essential self-sabotage.

Meanwhile, investors may have been divesting out of risk assets, but safe-haven gold prices were also beginning to come under pressure.

"Even gold is no longer willing to play," Ipek Ozkardeskaya, senior analyst at Swissquote Bank said.

"So, if you're wondering where does the capital flow? It flows to into the government bonds – [treasury] yields are all down on the growing expectation that the financial turmoil will soon bring the central banks back to cutting rates and to purchasing bonds to ensure stability..." Ozkardeskaya added.

US crude oil prices dipped below the psychological $60/b level as Saudi Aramco slashed its Asia-bound May official selling price differentials for its crude grades by $2.30/b across the board, reaching a four-month low on rising recession odds, analysts said.

"The outlook remains comfortably negative with the possibility of a further fall toward the $50/b level. Price recoveries could be interesting top-selling opportunities," the Swissquote Bank senior analyst Ozkardeskaya said.

Dubai crude

Dubai crude swaps and intermonth spreads were mixed in mid-afternoon Asian trading April 7 from the previous close.

The June Dubai swap was pegged at $63.47/b at 2:30 pm Singapore time (0630 GMT), down by $4.78/b (7.00%) from the previous Asian market close.

The May-June Dubai swap intermonth spread was pegged at 55 cents/b, narrower by 33 cents/b over the same period, and the June-July Dubai swap intermonth spread was pegged at 37 cents/b, narrower by 34 cents/b over the same period.

The June Brent-Dubai exchange of futures for swaps was pegged at 16 cents/b, wider by 18 cents/b over the same period.