Oil futures settled lower on US-China tensions

Oil futures settled lower on Wednesday after US President Donald Trump said he was working on a strong response to China’s proposed security law in Hong Kong.

The growing tensions between Washington and Beijing raised concerns over oil demand. The WTI July oil futures dropped by $1.54, or 4.5%, to settle at $32.81 a barrel.

John Kilduff, a partner at Again Capital LLC, stated that the market had rallied rather strongly on the cohesiveness that has emerged recently from global oil producers. 

A new challenge to China from the US

Mike Pompeo, the US secretary of the State, certified that Hong Kong is no longer politically autonomous from China. Therefore, it no longer deserves special treatment under US law.

The decision could have severe consequences for trade between Hong Kong and the United States, and the future investments in the former British colony, which had greater freedom than the rest of the country.

Pompeo said, in a statement, that no one could assure that Hong Kong maintains a high degree of autonomy from China.

Pompeo’s statements came in response to the controversial security law the Chinese parliament is debating to impose on Hong Kong. The debate continues despite years of intense protests on the territory against the role of Beijing. 

Hong Kong dubbed this as the most controversial issue since the handover of power in 1997. 

What does Pompeo’s announcement mean?

Hong Kong’s special status under US law provides the territory with favourable trading conditions. This agreement was reached when the former British colony returned to Chinese hands in 1997. That special status is conditional on the US Secretary of State. Every year, they certify that Hong Kong maintains sufficient autonomy from China. 

Shortly after Pompeo’s remarks, prominent pro-democracy activist, Joshua Wong, called on leaders from the US, Europe and Asia to follow the steps taken by the Secretary of State. He invited them to reconsider Hong Kong’s special trade status if Beijing enforces its security law. He said that once the law is implemented, Hong Kong will be integrated into the Chinese authoritarian regime. 

Bonnie Glaser, the senior adviser for Asia and director of the Chinese Power Project at CSIS, stated that there is still room to manoeuvre. China has launched a process, and now the US has done the same. There is nothing automatic about the next steps each will take, he explained. 

Beijing, on the other hand, has yet to draft the final version of the law, enact and implement it. The US Department of the State has yet to send a report to Congress revoking the Hong Kong certification.