Oil steadied as China moved to stabilize the yuan, cooling some concerns about an escalation in the standoff with the U.S., which labeled the Asian nation a currency manipulator.
Futures were 1% higher in New York as the People’s Bank of China on Tuesday set the daily currency fixing stronger than analysts expected. Crude had slumped as much as 1.8% earlier after comments by the U.S. Treasury Department sowed fears that the clash between the two biggest economies was about to inflict an even deeper toll on economic growth and oil demand.
While the yuan fix provided some relief to investors, the U.S. and China are still locked in a tit-for-tat spiral with no end in sight to their prolonged trade dispute. That’s pushed crude down about 6% this month and eclipsed the threat of supply disruptions from the Middle East. Iran could step up its operations against tankers passing through the Strait of Hormuz, the world’s most important oil chokepoint, Foreign Minister Javad Zarif said on Monday.
“Global growth and oil demand prospects have oil prices on a short leash,” said Norbert Ruecker, head of economics at Julius Baer Group Ltd. in Zurich.
West Texas Intermediate oil for September delivery rose 55 cents to $55.24 a barrel on the New York Mercantile Exchange as of 8:19 a.m. local time. The contract fell 1.7% on Monday.
Brent for October settlement added 42 cents, or 0.7%, to $60.23 a barrel on the London-based ICE Futures Europe Exchange. It slumped 3.4% on Monday to the lowest level since mid-January. The contract traded at a premium of $5.07 to WTI for the same month.
While the U.S. Treasury Department’s labeling of China is largely symbolic, with only modest potential punishments compared with the steps President Donald Trump has already taken against the Asian nation, it underscores the rapidly deteriorating relationship between the two nations.
Beijing will likely retaliate with levies on American oil imports if the White House goes ahead with putting tariffs on all Chinese goods, Michal Meidan, director of the China Energy Programme at the Oxford Institute for Energy Studies, wrote in a note.
“The U.S.-China trade war is worsening in every conceivable way,” said Satoru Yoshida, a commodities analyst at Rakuten Securities Inc. in Tokyo. “Even if tensions ease in one area such as tariffs, sanctions on companies or currencies, they may find another point of conflict.”
© 2019 Bloomberg L.P.