USA crude was down 24 cents, or 0.4%, at $55.42 a barrel.
"The scene is set for a ramped trade war between both sides".
China's government overnight allowed the yuan to drop beyond the key 7 per dollar level for the first time in more than a decade, signaling it may tolerate further currency weakness because of the trade dispute; a lower yuan would raise the cost of dollar-denominated oil imports in China, the world's biggest crude oil importer.
In the extreme, a combination of weaker demand (0.25 to 0.5 million b/d lower) and the return of up to 1.5 million b/d of Iran oil would weaken our balances by up to 2 million b/d.
Oil breaks sharply lower on growth slowdown, demand fears. In a note on Friday, Bank of America Merrill Lynch analysts said that global oil consumption growth is running at the weakest levels in almost a decade. China does not respond well to threats and has the ability to retaliate in indirect ways against USA trade measures, BofAML added. China last week reported slowing manufacturing activity in July.
"The economic outlook, which along with the situation in the Gulf, has seen oil prices struggle to advance".
Trump abruptly decided on Thursday to slap 10% tariffs $300 billion in Chinese imports, stunning financial markets and ending a month-long trade truce.
China said it would not accept "intimidation or blackmail" and pledged countermeasures.
As markets wait for a Chinese response to the latest U.S. tariff threat, oil volatility is set to rise again, said BofAML.
"The oil market has been the highest hit asset around from the trade war and this only exacerbates the situation", said John Kilduff, founding partner of Again Capital.
USA crude oil exports surged by 260,000 barrels per day (bpd) in June to a monthly record of 3.16 million bpd, suggesting there is plenty of oil in the market.
China, once the top buyer of US crude, had slashed its purchases previous year as the trade war dragged on.
Also in the USA, the weekly oil rig count, an indicator of future production, fell for a fifth week in a row as most independent producers cut spending even though majors were still pushing ahead with investments in new drilling.