Oil prices extended their losses following the release of a U.S. report showing a smaller-than-expected decline in crude inventories.
The U.S. Energy Information Administration (EIA) said crude stockpiles fell by 0.3 million barrels during the week ended May 24.
That was lower than the 0.9-million-barrel decline analysts forecast in a Reuters poll and compares with data from the American Petroleum Institute (API) on Wednesday showing crude inventories fell by 5.3 million barrels last week.
Brent futures were down $1.87, or 2.7%, at $67.58 a barrel by 11:33 a.m., while U.S. West Texas Intermediate (WTI) crude was down 97 cents, or 1.7%, at $57.84.
If the contracts close at their current levels, it would be the lowest settle for Brent since March 25 and WTI since March 12.
Before EIA released the report, crude futures were mixed, with global benchmark Brent down 1% on fears of a global economic slowdown due to the U.S.-China trade war, capped by a tightening crude market and rising political tensions in the Middle East.
U.S. WTI, meanwhile, was flat following the release of the API data on Wednesday, showing a much bigger-than-expected decline in U.S. weekly crude stocks.
“An escalating U.S.-China trade war represents a risk to oil markets,” Bernstein Energy said in a note on Thursday.
A senior Chinese diplomat on Thursday compared trade actions from Washington to “naked economic terrorism.”
Bernstein Energy said under “a full-blown trade war scenario,” global oil demand would grow by just 0.7% this year, half of current estimates.
Because of weakening demand, Bernstein said any upside for oil markets was capped despite relatively tight supply.
Oil prices have been supported in recent months by output cuts from the Organization of the Petroleum Exporting Countries (OPEC) and other major producers as well as falling supplies from Iran.
Iranian May crude exports dropped to less than half of April levels at around 400,000 barrels per day (bpd) after the United States tightened sanctions on Tehran’s main source of income. Iran needs to export at least 1.5-2.0 million bpd of crude to balance its books.
“We see an abundance of escalation risks in large part because the U.S. sanctions are subjecting Iran to almost unprecedented economic pain,” said Helima Croft, managing director of RBC Capital Markets.
Arab leaders gather in Saudi Arabia on Thursday for emergency summits that Riyadh hopes will deliver a strong message to Iran that regional powers will defend their interests against any threat following attacks on Gulf oil assets this month.
Many analysts also expect OPEC-led supply cuts to be extended until the end of 2019 as the group wants to prevent oil prices from falling back to levels seen in late 2018 when Brent slumped to $50 per barrel.
Since OPEC and its allies started withholding supply in January, oil prices have risen by about 30%.