Brent crude oil dropped below $70 a barrel on Thursday, taking losses over the last two sessions to more than 3 per cent as traders weighed the risks from a US-China trade war and rising inventories in the US.
Brent was down 1.7 per cent in late-morning trading in London to $69.77 a barrel, while US marker West Texas Intermediate lost a similar amount to trade at $60.35 a barrel.
The sell-off weighed on oil companies traded in London, with BP and Royal Dutch Shell both losing 2.2 per cent, while midsized oil and gas explorers were some of the biggest fallers on the FTSE All-Share index.
The index tracking oil and gas companies on the FTSE 350 was down 2.4 per cent, setting it on course for its sharpest drop since the beginning of the month. Premier Oil fell more than 7 per cent, Genel Energy lost 6.7 per cent, while Tullow was down 5.3 per cent.
Oil’s slide comes despite mounting geopolitical tensions in the Middle East, with traders instead preoccupied with the fallout from the US-China trade war and its potential impact on oil demand growth.
Physical supplies of crude are seen as relatively tight due to US sanctions on Iran and Venezuela, and Opec-led production cuts, but stockpiles have been rising in the US, the world’s largest oil consumer and the heart of the shale boom.
Crude inventories in the US hit the highest level in two years last week, the US Energy Information Administration said on Wednesday.
The perceived risk of holding the debt of junk-rated issuers in the US energy industry picked up on Wednesday, according to data from Intercontinental Exchange and Bank of America Merrill Lynch. The gap in yield between a basket of bonds tracking companies in the sector and highly rated government debt climbed to 5.87 percentage points, from 5.77 the previous day.
Additional reporting by Myles McCormick in London