Oil slumped over 3% on Friday and posted its biggest monthly drop in six months, after U.S. President Donald Trump stoked global trade tensions by threatening tariffs on Mexico, a key U.S. trade partner and a major supplier of crude oil.
Brent crude futures fell $2.38, or 3.6%, to settle at $64.49 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell $3.09 to $53.50 a barrel, a 5.5% loss.
During the session, Brent fell to a session low of $64.37 a barrel, lowest since March 8. WTI sank to $53.41 a barrel, weakest since Feb. 14.
Brent futures posted an 11% slide in May and WTI a 16% drop, their biggest monthly losses since November.
Trump vowed on Thursday to ratchet up tariffs unless Mexico stopped people from illegally crossing into the United States. The plan would impose a 5% tariff on Mexican imports starting on June 10 and increase monthly, up to 25% on Oct. 1.
That could hit the lucrative cross-border energy trade.
“U.S. refiners import roughly 680,000 barrels per day of Mexican crude. The 5% tariff adds an extra $2 million to the cost of their daily purchases,” PVM analysts said.
The United States also exports more fuels to Mexico than any other country, according to the U.S. Energy Department, though so far Mexico has not said whether it would retaliate.
Mexican President Andres Manuel Lopez Obrador on Friday urged Trump to back down from the threats.
The threats compound concerns about global economic growth, already at risk due to the U.S.-China trade war. That dispute has prompted worries about a recession.
Additional levies by Beijing on the majority of U.S. imports on a $60 billion target list are due to take effect on Saturday. The tariffs are in response to Washington’s move earlier this month to slap further tariffs of up to 25% on $200 billion of Chinese goods.
A Reuters survey showed Brent crude prices are likely to hold near $70 a barrel for the rest of the year as elevated supply risks in the Middle East offset risks to demand.
Top oil exporter Saudi Arabia’s increased output in May was not enough to compensate for lower Iranian exports, a Reuters survey found. The Organization of the Petroleum Exporting Countries is expected to meet late June. At the beginning of the year, OPEC and allies agreed to cut production by 1.2 million bpd.
U.S. production has offset that decline, as output returned to a record 12.3 million barrels per day, and as U.S. crude stocks fell less than expected last week, according to weekly figures.
“This fresh tariff headline offers a ‘pile on’ effect to an oil market that has already been seeing downside pressure from some unexpectedly large U.S. crude supply increases that have been weighing on values across this month of May,” Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.
U.S. energy firms this week increased the number of oil rigs operating for the first time in four weeks but cut the rig count for the sixth straight month as most drillers cut spending plans. Companies added three oil rigs, General Electric Co’s Baker Hughes energy services firm said Friday.