Oil futures tumbled Friday as tough talk between political leaders in Washington and Beijing on tariffs sparked a risk-off rally across global financial markets, dragging both equities and commodities lower.

NYMEX May crude settled $1.48 lower at $62.06/b. ICE June Brent settled at $67.11/b, down $1.22/b.

President Donald Trump said Thursday evening that the US would impose tariffs on an additional $100 billion of Chinese imports, marking another step in an escalating dispute.

White House economic adviser Lawrence Kudlow took to the airwaves repeatedly this week to try and calm down Wall Street investors.

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But the deepening stock selloff Friday showed traders remain unconvinced, particularly after Chinese officials vowed Friday to retaliate “forcefully” against any fresh tariffs.

All three major US averages were down more than 2% Friday afternoon, hitting session lows heading into the market close. Yields on the US 10-Year Treasury also were lower.

Traders also may have been disappointed by Federal Reserve Chairman Jerome Powell, who spoke Friday afternoon at the Economic Club of Chicago.

Powell stuck with his refrain that the central bank will need to keep raising interest rates this year. When asked, he said it was too early to say what impact, if any, tariffs would have on inflation.

Global trade tension, as well as technical-driven selling, played a role in Friday’s declines in the oil market, said Ryan McKay, commodity strategist at TD Securities.

“Recent short-term indicators triggered liquidation adding to downward momentum,” he said.

Front-month NYMEX crude touched an intraday high of $66.55/b March 26 in electronic trading. That was just 11 cents below the intraday high from January 25, which represented a three-year high.

Some traders likely interpreted the key resistance level holding as a signal to sell, McKay said.

Refined product futures also weakened Friday. NYMEX May ULSD settled 1.87 cents lower at $1.9578/gal. NYMEX May RBOB fell 2.69 cents to $1.9547/gal.

NYMEX CRUDE CONTANGO

NYMEX May crude settled Friday a discount of 4 cents to the June contract, marking a return to contango for the nearby spread.

The nearby spread flipped to backwardation in early January for the first time since late 2014, and stayed there until a five-day stretch in contango ending March 20.

One issue weighing on the crude term structure is US production, which has climbed more than 1.2 million b/d over the last year. Output averaged 10.46 million b/d last week, Energy Information Administration estimates show.

Greater drilling activity raises the prospect of even more production. The weekly US oil rig count rose 11 to 808 Friday, the most since March 2015, according to Baker Hughes.

Further out the curve, the extent of backwardation in the June/December spread has also lessened. That spread declined 29 cents Friday to $1.96/b.

BNP Paribas commodity strategist Harry Tchilinguirian recommended Friday exiting the “short” position in the NYMEX crude June/December spread.

That spread was backwardated $3/b January 30 when Tchilinguirian recommended opening a short position, he said in a client note.

–Geoffrey Craig, geoffrey.craig@spglobal.com

–Edited by Valarie Jackson, valarie.jackson@spglobal.com

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