Tariff disputes affecting crude prices

Disputes over tariffs affecting crude prices

By Joaquín Robles

05/04/2018

Analista de XTB

Crude prices saw their sharpest drop in almost two months due to fears of a trade war. This scenario would entail retaliation from China. This threat prompted investors to step away from basic products and other risk assets.

Futures fell by 3 percent last Monday. This drop grew as global stocks began to decline, especially in the face of rumors of retaliation from China. The Asian giant is set to impose tariffs on several U.S. products. This is the last measure in a rising trade war between the world’s top two economies. At the same time, concerns regarding oil supply are decreased in recent sessions. Uncertainty had taken over, which led hedge funds to raise upward trends in crude.

Trump’s Trade War

Meanwhile, Donald Trump had apparently become the stock markets’ best ally, mainly due to his increased spending policy and tax reform. Nonetheless, his latest decisions and the threat of a trade war sparked a rise in the sales volume. China’s retaliation came soon after the announcement of new tariffs on steel, aluminum, and technological products. The nation announced tariffs on more than 106 American products. The possibility of a trade war could bring very negative consequences for global growth and corporate profits.

Oil sales also fell by 20 percent during the first session after last week’s holiday.

The West Texas Intermediate started off the month on the low after rising by 5.4 percent in March. The OPEC’s efforts to reduce the oil glut have been undermined by growing U.S. shale oil production. A Kuwaiti oil secretary told the state news agency that crude is not expected to drop under $55 per barrel.

The WTI for May delivery stands at $62.37 per barrel on the New York Mercantile Exchange. This is its lowest in the past two weeks. Due to the holidays, there was no activity in the New York and London stock exchange on Friday.

China’s retaliation

Brent crude futures for June declined to $66.97 on London’s ICE Futures Exchange, exceeding the WTI by $4.65.

Retaliation from China has been a concern in energy markets. A trade war between these countries would affect demand in emerging markets, a big problem for the evolution of oil prices.

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