Oil drops after U.S. President Trump threatens new China trade tariffs

By Jane Chung

SEOUL (Reuters) - Oil prices fell on Friday after U.S. President Donald Trump's threat of new tariffs on China reignited fears of a trade war between the world's two biggest economies.

President Trump said on Thursday he had ordered U.S. trade officials to consider tariffs on $100 billion more of imports from China, escalating tensions with Beijing.

Brent crude for June delivery was down 45 cents, or 0.66 percent, at $67.88 per barrel at 0645 GMT.

U.S. West Texas Intermediate crude for May delivery was down 41 cents, or 0.65 percent, at 63.13 a barrel.

Shanghai September crude futures were untraded due to public holidays in China, after falling 0.8 percent on Wednesday. Shanghai trading will resume on Monday.

While oil market watchers were wary of the brewing trade war between the United States and China, they did not expect to see steep falls amid signs of tightening supplies.

"As the escalating trade tensions continue to weigh on the commodity sector, we view the oil market as the best sector in which to wait out the volatility," analysts at ANZ bank said in a note. "Supply-side issues amid a backdrop of falling inventories should override any concern over weaker economic growth."

The Energy Information Administration (EIA) reported a 4.6 million-barrel draw in U.S. crude inventories last week, compared with analysts' expectations for an increase of 246,000 barrels.

"U.S. oil inventories remain a volatile gauge, but they still provide a good litmus test for the short-term," said Stephen Innes, head of trading for the Asia-Pacific region at futures brokerage OANDA in Singapore.

Meanwhile, Saudi Arabia said on Thursday it would raise its official selling price for May crude for Asian customers.

The Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers including Russia are committed to cutting output by around 1.8 million barrels per day through the end of 2018 in a bid to clear a global overhang and support prices.

Saudi Arabia, the de facto leader of the oil cartel, has said production cuts could be extended in one form or another.

OPEC and its allies should keep the cuts to ensure healthy price levels as a way to boost investment in the industry and avoid a supply and price shock in the long run, Qatar's Energy Minister Mohammed al-Sada told Reuters.

(Additional reporting by Koustav Samanta in SINGAPORE; Editing by Aaron Sheldrick)

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