Crude headed for the second week of declines in May as President Donald Trump’s threats to impose tariffs on Mexico, which is the largest recipient of US oil exports, added to concern that a worsening trade environment would undermine global energy demand.

West Texas Intermediate crude futures fell by $1.94 intraday to $54.65, a 3.4% decline.

Brent also fell, in line with global equity markets, and as safe havens such as the yen, gold, and US bonds gained after the White House said Thursday the US would impose a 5% levy on all Mexican imports from June 10. If Mexico fails to “reduce or eliminate the number of illegal aliens” crossing into the US, the new duties will be stepped up on a monthly basis to 25% on Oct. 1.

“The tariff will gradually increase until the illegal immigration problem is remedied…at which time the tariffs will be removed,” President Trump said in a Twitter (TWTR) message on Thursday.

Given that the US refiners import about 680,000 barrels per day of Mexican crude, a 5% tariff adds an extra $2 million to the cost of daily purchases, PVM analysts were cited as saying in a report from CNBC. The levy would be notably higher if tariffs were to hit 25%, in the worst case scenario.

Crude was lower despite rebels in Libya, a member of the Organization for Petroleum Exporting Countries, (OPEC) unleashing a fresh offensive against the government, threatening crude supplies, which have so far held up relatively well.

Oil prices were also soft this week after the Energy Information Administration (EIA) said inventories fell by 282,000 barrels over a week to May 24 – that compared with expectations for an 857,000-barrel drop in a Reuters’ survey of analysts.

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Meanwhile, US crude output reclaimed a record 12.3 million barrels per day, as per data compiled by the EIA, undermining joint efforts being made by OPEC and non-OPEC producers led by Russia. The cartel has, with Russia, reduced total production by 1.2 million barrels per day since the beginning of this year to balance global demand and supply of oil.

Prospects of demand deteriorated somewhat on Thursday as manufacturing activity in China, the world’s second-largest economy that sits at the heart of an escalating trade conflict with the US, contracted in May. The official manufacturing Purchasing Managers’ Index fell to 49.4, from 50.1 in April, declining more than the market had expected.

China, on Friday, unveiled a plan to compile an “unreliable entities list” of foreign companies and people that fail to follow market rules and stop supplying Chinese companies for reasons other than commercial, and undermine the rights and interests of Chinese firms, signaling it was ready to fight back in its trade war with the US.

“We’ve been focusing a lot on the supply side with the sanctions [on Iran], the geopolitical risks in the Persian Gulf, but now concerns about global demand are coming back big time,” Olivier Jakob, founder of Petromatrix, was cited as saying in a report from the Wall Street Journal.

The number of oil rigs operating in the US rose by three in the week that ended on May 31 to 800, according to data from energy services firm Baker Hughes (BHGE). The combined oil and gas rig count in the US rose by one to 984 as gas rigs fell by two to 184.

In Canada, the number of oil rigs in operation rose by six to 44 while gas rigs climbed by one to 41 during the period under review. As a result, the North American total jumped by eight to 1,069 versus 1,159 a year ago, the data showed.