An oil well is seen near Denver, Colorado. Picture: Reuters
An oil well is seen near Denver, Colorado. Picture: Reuters

London — Oil fell on Tuesday as an escalating trade dispute between the US and China unleashed sharp sell-offs in many global markets.

The crude price was also dented by expectations that producer group Opec and partner Russia would gradually increase output in order to make up for involuntary losses in Venezuela and potential shortfalls from Iran, which is facing US sanctions related to its nuclear activity.

The US and China are threatening punitive tariffs on each other’s exports, which could include oil supplies, which sent Chinese stocks to their lowest in almost a year and kept European indices and other industrial commodities such as copper and nickel under pressure.

Brent crude futures fell 20 US cents to $75.14 a barrel by 9.03am GMT, while US crude futures lost 72c on the day to trade at $65.13 a barrel.

Oil traders are closely watching a threat by China to react to US tariffs by putting a 25% duty on US crude oil imports, which have been surging since 2017 to a value of almost $1bn per month.

Global oil demand will be revised downwards and, as such, oil will not be immune from all of the potential negative effects of international trade wars.

Energy consultancy Wood Mackenzie said the US "would find it hard to find an alternative market that is as big as China". It said China takes about 20% of all US crude exports.

Oil producers cartel Opec together with a group of nonOpec producers including Russia, started withholding oil supplies in 2017 to prop up prices.

Following a sharp increase in crude prices from their sub-$30 per barrel lows in 2016, the group on June 22 will meet in Vienna to discuss supply policy.

Greg McKenna, chief market strategist at futures brokerage AxiTrader said there was likely to be oil price volatility in the week ahead of the meeting.

"Opec is fractured or fracturing," McKenna said, as Iran, Venezuela and Iraq "seek to veto the production increase".

"We could be seeing the long-term relationship between the Saudis and Russia pushing Opec into second place," he added.

Global oil demand is set to stay strong in the second half of 2018, an Opec technical panel forecast this week, suggesting the market could absorb extra production from the group.