New York — NYMEX product futures settled sharply lower Monday amid demand growth concerns fueled by steep declines in US equity markets.
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NYMEX September ULSD settled down 5.46 cents at $1.8356/gal and September RBOB settled 6.35 cents lower at $1.7180/gal.
US equity markets were sharply lower Monday after Beijing announced it would suspend purchases of US agricultural products. The Dow Jones Industrial Average was down around 845 points at the close of oil trading.
Beijing's actions came in response to Trump's announcement last week that the US would add 10% tariffs on $300 billion worth of Chinese goods from September 1.
Weaker product pricing reflected concerns that trade disputes would slow economic growth, analysts said.
"I've always thought the distillate contract mirrors the economic expectations in the market, more so than even crude," Tradition Energy analyst Gene McGillian said. "That's why distillate is down more than a nickel."
Crude futures were also down on the day, but a weakened US dollar and heightened geopolitical risk held a floor under prices.
NYMEX September WTI settled 97 cents lower at $54.67/b and ICE October Brent was down $2.08 at $59.81/b at market close.
Outsized declines in Brent futures narrowed the Brent/WTI spread to $5.12/b, the weakest Brent premium since early August 2018.
"Given all the fears of global economy slowing from escalating trade dispute, it's pretty clear the market could have taken more of a hit if it wasn't for how weak the dollar is," McGillian said.
ICE US Dollar Index futures were on pace to close lower for a fourth straight session Monday, and were trading at around 97.29 at the close of oil trading. The index was as high as 98.7 intraday last week just prior to Trump's tariff announcement. US dollar strength and oil prices are typically inversely correlated.
The market was also concerned that a weakened Chinese yuan could be the start of a US-China currency dispute, marking an escalation in a previously tit-for-tat tariff war between the two nations.
The yuan fell to 7.0392 versus the US dollar Monday, its lowest since 2008, according to media reports, after the People's Bank of China dropped its reference rate to 6.9, the weakest since December. PBOC Governor Yi Gang said the move was the result of market forces, but US President Donald Trump decried it as currency manipulation in several tweets Monday.
"China is intent on continuing to receive the hundreds of Billions of Dollars they have been taking from the U.S. with unfair trade practices and currency manipulation. So one-sided, it should have been stopped many years ago!" Trump tweeted mid-day.
"China dropped the price of their currency to an almost a historic low. It's called 'currency manipulation,'" Trump tweeted Monday morning.
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