OPEC production cut could be jeopardized by U.S. pressure

as Trump sticks to his “America First” policy to protect the country’s industries, the risk of a trade war hangs over global economy

By Joaquín Robles

08/03/2018

*XTB Analyst

Oil is down for the first time in four sessions, mainly due to concerns over the rise of U.S. crude stocks. Another relevant reason is the risk of a global trade war provoked by President Donald Trump.

Risk of Trade War

New York futures dropped by 1.2 percent after the American Petroleum Institute reported that U.S crude stocks increased. This rise reportedly amounted to 5.7 million barrels. The rest of the financial markets were also shaken. This all happened after one of Trump’s economic advisors, Gary Cohn, resigned. The official’s resignation is reportedly related to the new tariffs of aluminum and steel imports.

Meanwhile, oil prices have maintained above the $60 mark this year. Additionally, the OPEC and its allies have continued enforcing the crude production cut aimed at lowering global oversupply. Investors remain concerned that the rise in U.S. production could be detrimental to the group’s efforts. Donald Trump’s new protectionist measures bring a new wave of concerns. There are growing signs of the risk of a trade war that would lead to great uncertainty in some risk assets.

U.S. stocks

U.S. crude production could further grow and undermine the OPEC’s production cuts. In essence, as Trump sticks to his “America First” policy to protect the country’s industries, the risk of a trade war hangs over global economy.

The West Texas Intermediate dropped by 77 cents on the New York Mercantile Exchange, standing at $61.83 per barrel. The total volume traded was about 26 percent higher than the 100-day average.

Meanwhile, the Brent barrel for May delivery declined by 0.9 percent to $65.23 in the ICE Futures Europe Exchange. The global index is trading at a premium of $3.31 compared with WTI.

Tariffs

President Trump reaffirmed his commitment to implement tariffs on steel and aluminum imports on Tuesday. He claimed that “trade war is not that bad.” Future contracts of the S&P 500 index went down, while safe-haven assets such as the yen and Treasury bonds increased.

Trump also threatened to go after China, which has been one of his main commercial targets since the beginning. The Trump Administration is considering taking drastic measures against Chinese investment in the U.S. The government plans to impose tariffs on a large amount of imports and punish China for alleged theft of intellectual property.

In addition to a trade war, concerns about the growth of U.S. stocks weighted on oil futures. Last week, analysts forecasted that the government will announce a 3-million-barrel rise in stocks.

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