Despite China’s pledge on Monday to refrain from taking trade action against the United States if the European Union does not do the same, fears of a looming oil crisis deepened Tuesday as investors looked to the U.S. as their primary battleground.
The conflict came to a head earlier this month when the United States threatened a fourth round of tariffs on $200 billion worth of Chinese goods, sparking fears of a full-blown trade war that would rattle commodity markets around the world.
“Investors are looking at the recent volatility in crude oil and are wondering if there could be coordinated action to save the global economy,” said Dominic Schnider, Head of EMEA Oil and Gas at UBS Wealth Management.
“Iran’s sanctions have been fully included in the letter to WTO, and so if China don’t stop it would lead to a situation of falling oil prices. When you combine that with potential coordinated action between the U.S. and China, this scenario is the most likely one for global oil prices.”
One of the groups that has been increasingly vocal about falling oil prices is OPEC. The Organization of the Petroleum Exporting Countries, along with a handful of other producers, has agreed to cut production by 1.2 million barrels per day in an effort to help buoy prices.
Crude oil lost over 2.5 percent on Tuesday to close at $72.12 per barrel, its lowest level since August. Crude has shed almost 13 percent since mid-September and currently sits around $72 per barrel, a level where it was trading last month.
Next month, OPEC is expected to make its next cut to production levels as its producers have concluded that a record three-year-long price slump has taken its toll on the global economy.