Oil Prices Tumble on Trump Tariffs and OPEC+ Production Hike
After a string of weekly gains, oil prices were sent tumbling this week following the announcement of tariffs that the United States will impose on its trade partners, many of which are running substantial trade surpluses with the U.S.
At the time of writing Brent crude was trading at $69.52 per barrel, with West Texas Intermediate at $66.25 per barrel, both sharply down from earlier in the week when Brent crude was trading above $75 per barrel and WTI climbed past $72.
The tariffs announced by President Trump immediately hit the benchmarks because the overwhelming consensus among observers is that the duty action will hurt economic growth, consequently depressing oil demand. The IMF issued a statement to that effect and virtually all analysts agree on that negative impact of tariffs. What they seem to disagree on is the duration of the tariffs and their ultimate purpose—a means of forcing trade partners to make trade concessions to the U.S. or a means of reshoring businesses benefiting from the previous global trade context.
In a somewhat surprising development that coincided with the tariff announcement, OPEC+ said on Thursday that it will continue unwinding its production cuts, which additionally pressured the benchmarks. Not only this, but OPEC+ said it would bring back a lot more production than it originally planned, at 410,000 bpd instead of 135,000 bpd, to return in May, “in view of the continuing healthy market fundamentals and the positive market outlook.”
ING analysts suggested several reasons for this decision, such as the perception that U.S. sanctions on Iran and Venezuela will squeeze supply enough to justify a bigger rollback of production cuts. Another reason they put forward was that President Trump had been successful in convincing Saudi Arabia to ease the cuts in line with his campaign promise for cheaper energy. A third option is punishment for overproducers within the group. In any case, ING sees an oil surplus sooner than expected.