US oil drops 1% as US-China trade tensions increase

Brent crude futures were down 42 cents at $70.20 a barrel. U.S. West Texas Intermediate (WTI) crude futures settled down 1%, or 62 cents, at $61.04.

Oil was pressured by a slump in stocks and other risk assets as investors moved into safe havens like Treasury bonds due to the intensifying U.S.-China trade war.

China defied a warning from U.S. President Donald Trump and said it would impose higher tariffs on a range of U.S. goods including frozen vegetables and liquefied natural gas. The move was widely expected after Washington last week raised tariffs on $200 billion in Chinese imports.

Investors fear the trade war between the world’s two largest economies could escalate further and derail the global economy.

Earlier, oil prices had risen more than $1 a barrel after Saudi Arabia said two Saudi oil tankers were among vessels attacked off the coast of the United Arab Emirates. It was unclear how the attacks occurred.

“This attack raises the stakes for oil and will add more volatility,” said Phil Flynn, an analyst at Price Futures Group in Chicago, in a note.

On Sunday, the UAE said four commercial vessels were attacked near Fujairah, one of the world’s largest bunkering hubs. The port lies near the Strait of Hormuz, a vital oil export waterway.

Iran’s foreign ministry described the incidents as “worrisome and dreadful” and called for an investigation.

Saudi Arabia is the largest producer in the Organization of the Petroleum Exporting Countries (OPEC) and the UAE is third.

The U.S. Maritime Administration said in an advisory on Sunday that the incidents off Fujairah, one of seven emirates in the UAE, had not been confirmed and urged caution.

Volumes were strong in early U.S. trading, with more than 710,000 U.S. crude futures contracts changing hands.

Oil prices have risen more than 30 percent this year, supported by supply concerns as the United States imposed sanctions on Iran and Venezuela.

Washington reimposed sanctions on Iran in November after pulling out of a 2015 nuclear accord between Tehran and world powers. Iran insists on exporting at least 1.5 million barrels per day (bpd) of oil, triple May’s expected levels under U.S. sanctions, as a condition for staying in an international nuclear deal, sources with knowledge of Iran-EU talks said.