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Oil Tumbles on Recession Fears as China vows to Hit Back at US

© Reuters.

By Barani Krishnan – Oil is totally caught up on the R-word – back-and-forth threats of trade retaliation between China and the U.S. are spawning such recession fears that they have paralyzed the bulls from making a comeback on this week’s losses in crude.

Crude futures fell as much as 2% on Thursday, tumbling for a second day in a row on fears of a global recession, as Beijing promised to lash back at President Donald Trump’s latest initiative to impose tariffs on effectively all Chinese exports into the U.S.

New York-traded was down 91 cents, or 1.7%, at $54.32 per barrel by 1:18 PM ET (17:18 GMT). It fell 3.3% in the previous session after after the U.S. Energy Information Administration reported a second straight week of crude builds, disappointing oil bulls banking on an inventory draw.

London-traded , the benchmark for oil outside of the U.S., fell further beneath the key $60 per barrel mark it crashed under on Wednesday. Brent lost $1.32, or 2.2%, to stand at $58.16. It lost 3.2% a day earlier.

Oil is grappling with one of its worst periods of volatility ever as occasionally positive news on crude faces off with trade war threats, dismal economic data and inversion of the U.S. bond yield, which is a sign of recession.

“We have doom and a spattering of gloom,” said Phil Flynn, senior market analyst for energy at the Price Futures Group brokerage in Chicago.

“Bottom line, the oil market is trading on fear. Weak data overseas suggests that oil demand may slow. But actual numbers suggest that that slowing may be overstated.”

China’s finance ministry said on Thursday it has to take necessary counter-measures to the latest U.S. tariffs on $300 billion of Chinese goods.

Beijing said the U.S. tariffs violate a consensus reached by leaders of two countries and get off on the right track to resolve disputes via negotiation.

The United States said early this month it would slap duties on $300 billion of Chinese goods from Sept. 1, which would effectively cover all of China’s exports to the United States.

But President Donald Trump backed off on part of the plan on Tuesday, delaying duties on some of the items on the list such as cellphones, laptops and other consumer goods in the hopes of blunting their impact on U.S. holiday sales. Tariffs will still apply to those products starting in mid-December.

With demand weakening, concerns that the global crude market will slide into another glut are growing. Data released Wednesday by the Energy Information Administration showed a second straight week of rising crude inventories in the U.S., although analysts suggested that the headline masked an underlying picture of still-strong demand.

Analysts at ING noted that U.S. gasoline demand hit a record 9.93 million barrels a day last week.

Others such as Flynn said the market has chosen to focus on only the bad news and ignore positive news such as the more than $2 billion stimulus package announced to revitalize Hong Kong’s economy from the political chaos in the Chinese territory.

Flynn acknowledged the recessionary signs from the inverted yield curve but still said it wasn’t a perfect indicator. “Bottom line: be patient,” he urged. “Do not panic. Look for opportunity.”A

WTI’s gain for the year has slid from its peak in late April from about 41% to about 19.5%. Brent’s year-to-date gain has slid from about 39% at its late-April peak to just under 8%.

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