Oil prices fell sharply on Wednesday as China signaled it would play the rare earths card in its trade war with the United States, stoking concerns that an ongoing stand-off could hurt crude demand.
Supply constraints linked to OPEC output cuts and political tensions in the Middle East offered some support, however.
Front-month Brent crude futures, the international benchmark for oil prices, were at $68.68 a barrel at 1345 GMT, down $1.43 from the previous close, having hit a session low of $68.08.
U.S. West Texas Intermediate (WTI) crude futures were at $57.57 per barrel, down $1.57, after hitting a low of $57.14.
Both contracts are set for their first monthly decline in five.
In a sign of escalating tensions between the world’s two biggest economies, China signaled it was ready to use its dominant position in rare earths to strike back in a trade war with the United States, Chinese newspapers warned on Wednesday.
While China has so far not explicitly said it would restrict rare earths sales to the United States, Chinese media has strongly implied this will happen.
“China is the world’s biggest producer of these highly-prized raw materials and is poised to use them as leverage in its trade spat with Washington,” London brokerage PVM said.
Despite these concerns dragging on oil markets, crude prices remain relatively well supported.
“Supply risks remain at elevated levels with continued geopolitical uncertainty in the Middle East, as well as Venezuela’s well-known struggles,” James Mick, managing director and energy portfolio manager with U.S. investment firm Tortoise, said in an investor podcast.