Oil plummets, on track for biggest weekly drop in 2019

NEW YORK: Oil prices plunged on Thursday, losing about 5% as trade tensions dampened the demand outlook, putting the crude benchmarks on course for their biggest daily and weekly falls in six months.

Oil coursed downward with other global markets as concerns grew that the China-US trade conflict was fast turning into a technology cold war between the world's two largest economies.

While the trade war is the main cloud over economic growth and demand predictions, market participants also pointed to weakening US data and overfull US crude stockpiles.

"Again, we're seeing the effect of worries about the trade issue on demand," said Gene McGillian, vice president at Tradition Energy in Stamford, Connecticut. Funds and money managers who had built up long positions are "heading to the exits" as trade concerns dim the demand outlook, he said.

Brent crude futures, the international benchmark, settled down $3.23, or 4.6%, at $67.76 a barrel.

US West Texas Intermediate (WTI) crude futures dropped $3.51, or 5.7%, to $57.91 a barrel. Earlier, the contract touched $57.33 a barrel, the lowest since March 13.

That was a second consecutive daily decline for the benchmarks. WTI fell 2.5% on Wednesday after government data showed US crude inventories rose last week, hitting their highest levels since July 2017.

Economic health indicators for the United States, Europe and Japan showed less robust growth than expected.

Data firm IHS Markit said its US manufacturing PMI declined to a reading of 50.6 in early May, marking the lowest level since September 2009, from 52.6 in April. A reading above 50 indicates growth in the manufacturing sector, which accounts for about 12% of the US economy.

The survey showed broad weakness, with a measure of new orders received by factories dropping for the first time since August 2009.

The firm's survey for Euro zone business growth accelerated less than expected this month.

Additionally, US-Iran tensions are decreasing, some analysts said.

"The administration seems to be tamping down the president's rhetoric on Iran," said John Kilduff, a partner at Again Capital in New York.

The oil market has built in risk premium related to US sanctions on Iran, and that risk is now seen decreasing, he said.

Countering these bearish factors are ongoing supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).

French bank BNP Paribas said high inventories meant that OPEC would likely keep its voluntary supply cuts in place beyond their end-June deadline.

Global geopolitical risk was still sufficient to provide a floor for oil prices, said Again's Kilduff. Drone attacks on Saudi Arabia earlier this week called attention to ongoing Middle East turmoil that may prevent oil prices from pulling back to February lows, Kilduff said.