U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are down over 5% on Friday as escalating tensions between the United States and China encouraged long investors to take profits ahead of the weekend. Prices were also pressured by concerns over the pace of demand recovery from the coronavirus crisis.
Prices reversed to the downside early Friday as the tensions between the U.S. and China centered on the former’s imposition of a new national security law on Hong Kong after months of anti-government protests in the Chinese-ruled city. Tensions between Beijing and Washington have risen in recent days, over issues such as the coronavirus pandemic as well as a bill that was passed which could force Chinese firms to delist on U.S. exchanges.
The draft law was announced at the annual National People’s Congress (NPC), the Chinese parliament, which kicked off on Friday. The laws would reportedly ban secession, foreign interference, terrorism and all seditious activities aimed at toppling the central government and any external interference in the former British colony, according to Reuters.
Adding to uncertainties, China refrained from setting a 2020 GDP growth target and pledged to step up spending and financing to support its economy, the first time that the Asian country did not set a gross domestic product (GDP) goal since 1990 when the government started to publish such targets, according to Reuters.
Chime Do, head of Greater China Investments at Barings, said short-term traders were mostly concerned with the absence of a growth on Friday. “The market was hoping they would give some kind of number, 2% or 3%, but that wasn’t available.”
With U.S.-China relations strained on three fronts – coronavirus blame, stock market delisting and Hong Kong – the tensions between the two economic powerhouses are likely to worsen over the near-term, which could raise just enough uncertainty to encourage crude oil traders to book profits and take to the sidelines on concerns over future demand.