Oil prices have fallen after a rise in US-China tensions that was spurred by Beijing moving to impose security laws on Hong Kong and as fresh doubts set in about demand amid the coronavirus recovery.
Brent crude oil, the main global price, fell 4.9 per cent to $34.40 per barrel. Meanwhile US benchmark WTI crude dropped 5.7 per cent to $32 per barrel.
The oil sell-off came after China said it would impose security laws on semi-autonomous city Hong Kong. That caused Hong Kong’s Hang Seng index to plunge more than five per cent overnight as investors feared a new wave of protests and a rise in US-China tensions.
US President Donald Trump said his government would react “very strongly” if China pressed ahead with the laws, which would ban “treason, sedition and subversion” in Hong Kong.
Craig Erlam, senior market analyst at currency platform Oanda, said: “It’s been a good run for oil prices but rising US-China tensions have proven a step too far.”
A decision by Beijing not to set a GDP growth target also weighed on oil prices. It showed that China may not be able to continue the rapid economic expansion that has caused it to guzzle oil in recent years.
Oil markets have had a wild few months amid the coronavirus crisis. The deepest global recession since the 1930s has caused demand, and so oil prices, to plunge.
Evaporating demand, storage problems and market quirks combined last month to send the US oil price into negative territory. Sellers paid buyers to take oil off their hands.
It has since recovered dramatically, however, as countries gradually reopen their economies and demand returns.
Yet Erlam cautioned: “The outlook is still highly uncertain and numerous risks lie on the horizon, even before you taken recent tensions into consideration.”
“There’ll be nothing normal or straightforward about this recovery,” he added.