* Steepest drop in U.S. crude in four years
* Trump vows new 10% tariff on $300 bln worth of China goods
* U.S. crude inventories fall for seventh straight week
* U.S. manufacturing activity slows further in July
(Adds detail on equities markets)
By Devika Krishna Kumar
NEW YORK, Aug 1 (Reuters) - Oil prices plummeted more than
7% on Thursday, with the U.S. benchmark posting its worst day in
more than four years, after President Donald Trump said he would
impose additional tariffs Chinese imports starting Sept. 1.
The drop in Brent crude was the steepest in more than three
years, undoing a fragile oil rally built on steady drawdowns in
U.S. inventories even as global demand looked shaky due to the
U.S.-China trade dispute.
Trump's announcement of an additional 10% levy on $300
billion worth of Chinese goods undermined hopes that the world's
two largest economies had reached a detente in a year-long
conflict that has weakened growth worldwide.
Brent crude LCOc1 fell $4.55, or 6.99%, to settle at
$60.50 a barrel, after having dropped to $60.02, its lowest
level since June 13. The international benchmark's decline on
Thursday was its biggest daily percentage drop since February
2016.
U.S. West Texas Intermediate (WTI) CLc1 crude ended the
session down $4.63, or 7.9%, at $53.95 after sinking to a low of
$53.59, the lowest level since June 19. It was the biggest
percentage decline since February 2015. More than 836,000
contracts changed hands, surpassing the daily average of about
623,000 contracts, according to Refinitiv Eikon data.
"The U.S.-China trade war has damaged the energy demand
outlook greatly, already, and this will only add to those
concerns," said John Kilduff, partner at Again Capital
Management. "The trade war is clearly far from over."
Wall Street abruptly reversed its gains following Trump's
tweets, after spending most of the session on track for the best
day since June. Bond prices also rose, causing yields to drop as
investors sought out safe assets. Oil prices were already weak on continued reaction to the
Federal Reserve on Wednesday. The Fed cut rates as expected, but
market sentiment turned negative after Fed Chairman Jerome
Powell said the move might not be the start of a lengthy series
of cuts to shore up the economy against global weakness.
Crude prices could see bearish momentum remain after
breaking below critical support levels on Thursday, said Edward
Moya, senior market analyst at OANDA in New York.
Inventories at the Cushing, Oklahoma, hub, the delivery
point for U.S. crude futures, fell by 1.5 million barrels
between Friday and Tuesday, traders said, citing data from
market intelligence firm Genscape.
But U.S. output remained near a record, above 12 million
barrels per day (bpd), making the country the biggest producer
in the world.
Output in Texas, the largest producing state, rose by 16,000
bpd to 4.97 million bpd in May, a record high, U.S. government
data showed.
"The market was already wobbly on reports by analysts that
production would increase faster than demand by 1 million
barrels per day in the new year," said Phil Flynn, analyst at
Price Futures Group in Chicago.
"But the final straw for the oil market was when Trump
imposed these additional tariffs and caught the market by
surprise."
U.S. manufacturing activity slowed to a near three-year low
in July, and construction spending fell in June as investment in
private construction projects tumbled to its lowest level in
1-1/2 years. Total U.S. oil demand in May fell 98,000 bpd to 20.26
million bpd, data showed on Thursday. OPEC and partners including Russia, an alliance known as
OPEC+, have been curbing output this year to support the market.
In July, OPEC production revisited a 2011 low, helped by a
further cut by Saudi Arabia, a Reuters survey showed.
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GRAPHIC: U.S. crude inventories, weekly changes since 2017 https://tmsnrt.rs/2y7mC9g
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