Oil prices fell on Wednesday to a five-month low due to escalating US-China trade tensions and the International Energy Agency's (IEA) prediction of a supply surplus in 2026.

Brent crude fell 48 cents, or 0.8%, to $61.91 per barrel. US West Texas Intermediate (WTI) crude fell 43 cents, or 0.7%, to $58.27. This was the lowest close for both benchmarks since May 7, for the second straight day.

Bank of America said Brent could fall below $50 per barrel if US-China trade tensions escalate while OPEC+ production increases. The world's two largest oil consumers have renewed their trade war over the past week, with the US and China imposing additional port fees on ships transporting cargo between them. This tit-for-tat action could disrupt global shipping flows.

Last week, China announced it would increase controls on rare earth exports, while US President Donald Trump threatened to raise tariffs on Chinese goods to 100% and tighten restrictions on software exports starting November 1.

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

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

Renewables pose a "material" downside risk to the economic outlook, making it increasingly important for the US Federal Reserve to cut its benchmark interest rate, Fed Governor Stephen Miran said on Wednesday. Looser economic policy could boost economic growth and oil demand.

US retail sales, excluding motor vehicles and parts, likely rose further in September, according to data from the Chicago Fed, although some of the increase likely reflected higher prices.

On Tuesday, the IEA said the global oil market could face a surplus of up to 4 million barrels per day next year, larger than previously estimated, as OPEC+ and other countries increase production while demand remains sluggish.

OPEC+ includes the Organization of the Petroleum Exporting Countries (OPEC) and allies such as Russia and Azerbaijan. Britain on Wednesday targeted Russia's two largest oil companies, Lukoil and Rosneft, as well as 51 shadow tankers in what it described as a new effort to tighten energy sanctions and limit the Kremlin's revenues.

Russia was the world's second-largest crude oil producer after the US in 2024, according to US energy data. Any escalation of sanctions due to Moscow's war with Ukraine would prevent more of that oil from reaching the global market.

In Azerbaijan, oil production fell 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. (alg)

Source: Reuters