Tokyo/London: Oil headed for the biggest weekly loss in more than five months as escalating trade tensions between the US and China rattled investors, while Libya’s plans to restore output allayed fears of a supply crunch.

Futures in New York plunged 5 per cent this week as US President Donald Trump doubled down on a trade war with China by threatening tariffs on nearly half of all American imports from the Asian nation. Libya restarted a key field that had been shut since February after regaining control of ports from a political faction. Nonetheless, the International Energy Agency warned on Thursday that spare capacity may be stretched to the limit.

Oil has retreated since hitting a three-year high in New York at the start of the month, as the trade clash between the US and China threatened economic growth. Supply fears abated too, as Libya set about restoring exports and the US signalled it might show some flexibility in re-imposing sanctions on buying Iranian crude. The structure of Brent contracts even signalled a slight surplus. Still, the IEA warned that the imminent losses in Iran and elsewhere may force Saudi Arabia and OPEC’s other Gulf members to pump near the limits of their capacity.

“Even though the outlook is quite bullish when looking ahead, people are worried that it’s not right now,” Richard Mallinson, an analyst at consultants Energy Aspects Ltd in London, said in a Bloomberg Television interview. “We’ve had a big announcement of a recovery in Libyan production and that’s just sent some nervous shudders through the market.”

Sliding prices

West Texas Intermediate crude for August delivery traded at $70.06 (Dh257.12) a barrel on the New York Mercantile Exchange, down 27 cents, at 11:23am in London. Total volume traded was about 22 per cent below the 100-day average. Futures have dropped about 5 per cent this week, most since early February.

Brent for September settlement lost 57 cents to $73.88 on the London-based ICE Futures Europe exchange. The global benchmark traded at a $4.94 premium to WTI for the same month.

Front-month Brent flipped to a discount to October futures this week, a structure known as contango. The pattern normally suggests that immediate supplies are excessive. The two contracts nearest to expiry were near parity on Friday.

Trade shock

Brent posted its biggest one-day drop in more than two years on Wednesday, after Trump released a list of $200 billion worth of Chinese products that could face additional tariffs. Global risk assets sold off as China vowed to retaliate.

Meanwhile, there are signs supply disruptions that helped oil’s rally earlier this month are easing in some places.

Opec member Libya is set to restart production at El-Feel. The country’s National Oil Corp. lifted force majeure at the field, which will boost output to 50,000 barrels a day within two days and to 72,000 barrels three days later, the company said in a statement on Thursday.

Also, Syncrude Canada Ltd has increased its July production forecast at its oil-sands upgrader in Fort McMurray, Alberta, according to a person familiar with the matter, following a shutdown in June. That comes after various disruptions from longer-than-anticipated maintenance to power outages due to a blast roiled operations at Canada’s second-oldest oil sands mine.