The specter of tariffs on a further $200 billion worth of Chinese goods sent commodities lower along with stock markets, as trade tensions between the world’s two biggest economies intensified.
Brent crude futures (LCOc1) were down 65 cents, or 0.8 percent, at $78.21 a barrel by 0627 GMT, having fallen to as low as $77.60. U.S. crude (CLc1) was down 43 cents, or 0.6 percent, at $73.68.
“The trade concerns have bitten today and the reason is that this is above and beyond what the market was expecting,” said Michael McCarthy, chief markets strategist at CMC Markets in Sydney.
“Although there is a long deadline on this, if these tariffs are introduced there will be an impact on global growth and demand,” McCarthy said.
The bearish mood was also fueled by news the United States would consider requests for waivers from sanctions due to snap back into place on Iranian crude exports.
Washington will consider requests from some countries to be exempted from sanctions it will put into effect in November to prevent Iran from exporting oil, U.S. Secretary of State Mike Pompeo said on Tuesday.
Washington had earlier told countries they must halt all imports of Iranian oil from Nov. 4 or face U.S. financial measures, with no exemptions.
The U.S. pulled out of a multinational deal in May to lift sanctions against Iran in return for curbs to its nuclear program.
U.S. crude inventories fell last week by 6.8 million barrels, according to data from industry group, the American Petroleum Institute.
Analysts polled by Reuters forecast that crude stocks fell on average by 4.5 million barrels, ahead of government data at 10:30 a.m. EDT (1430 GMT) on Wednesday.
U.S. crude oil production is expected to average more than 12 million barrels per day late next year for the first time, the U.S. Energy Information Administration said in a monthly report on Tuesday.