Oil prices hit 5-month low on US-China trade tensions, looming supply surplus

By Scott DiSavino

NEW YORK (Reuters) -Oil prices eased on Wednesday to a five-month low on escalating U.S.-China trade tensions and the International Energy Agency's prediction of a supply surplus in 2026.

Brent crude futures fell 48 cents, or 0.8%, to settle at $61.91 a barrel. U.S. West Texas Intermediate (WTI) futures fell 43 cents, or 0.7%, to settle at $58.27. Those were the lowest settlements for both benchmarks since May 7 for a second day in a row.

Bank of America said Brent prices could slip below $50 a barrel if U.S.-China trade tensions intensify while OPEC+ production ramps up.

The world's two largest oil consumers have renewed their trade war over the last week, with the U.S. and China imposing additional port fees on ships carrying cargo between them. The tit-for-tat moves could disrupt global freight flows.

Last week, China announced it would increase rare earth export controls and U.S. President Donald Trump threatened to raise tariffs on Chinese goods to 100% and tighten software export curbs from November 1.

On Wednesday, U.S. Treasury Secretary Scott Bessent insisted that Washington did not want to escalate the trade conflict, adding Trump is ready to meet Chinese President Xi Jinping in South Korea later this month.

Deflationary pressures persisted in China, with both consumer and producer prices falling in September. A prolonged property market slump and trade tensions also weighed.

Renewed U.S.-China trade tensions pose a "material" downside risk to the economic outlook, making it more important that the U.S. Federal Reserve cut its benchmark interest rate, Fed Governor Stephen Miran said on Wednesday. Looser economic policies can boost economic growth and demand for oil.

U.S. retail sales excluding motor vehicles and parts likely posted further gains in September, data from the Chicago Fed showed, though part of the rise probably reflected higher prices.

On Tuesday, the IEA said the global oil market could face a surplus next year of up to 4 million barrels per day, wider than its previous forecast, as OPEC+ and others raise output and demand remains sluggish.

OPEC+ includes the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia and Azerbaijan.

Britain on Wednesday targeted Russia's two largest oil companies, Lukoil and Rosneft, and 51 shadow fleet tankers in what it described as a new bid to tighten energy sanctions and choke off Kremlin revenues.

Russia was the second-biggest producer of crude oil in the world after the U.S. in 2024, according to U.S. energy data. Any increase in sanctions due to Moscow's war with Ukraine should keep more of that oil out of global markets.

In Azerbaijan, oil output fell by 4.2% to 20.7 million metric tons in January-September from 21.6 million metric tons a year earlier, the energy ministry said on Wednesday.

US OIL INVENTORIES

The American Petroleum Institute (API) trade group and the U.S. Energy Information Administration (EIA) are due to release weekly U.S. inventory data on Wednesday and Thursday, [EIA/S] [API/S] a day later than usual due to the U.S. Columbus Day/Indigenous Peoples' Day holiday on Monday.

Analysts forecast U.S. crude stockpiles rose by about 0.3 million barrels last week.

If correct, that would be the first time energy firms added oil to storage for three weeks in a row since April. That compares with a decrease of 2.2 million barrels during the same week last year and an average increase of 1.1 million barrels over the past five years (2020-2024).

(Reporting by Scott DiSavino in New York, Stephanie Kelly in London, Sam Li in Beijing and Jeslyn Lerh in Singapore; Editing by Barbara Lewis, Mark Potter, Emelia Sithole-Matarise and David Gregorio)