President Donald Trump said he will be sharply increasing tariffs on Chinese goods this week, another bold and unexpected move that sent investors into turmoil. Get it? Turm-oil. You’ll get it later.
This announcement by the president caused oil prices to drop on Monday as his decision could jeopardise trade talks between two huge economies.
Lets talk figures. US West Texas Intermediate (WTI) crude futures were at $60.57 per barrel at 6.46 p.m. GMT. That’s a drop of 2.2% or $1.37 per barrel since their last settlement of $61.94.
Brent Crude Oil fell too and was trading at $69.34 per barrel, a decrease of 2.1% or $1.51 per barrel from the last settlement of $70.85.
In retrospect this doesn’t seem like too much of a drop but investors fear the future more than what’s happening at the moment. They’re more concerned over the level of demand for oil in the future. Demand could lessen because of Trump’s derailment of months of trade talks between the nations. Investors are trying to reduce their risk on the markets rather frantically after Trump took to Twitter with the news on Sunday.
It wasn’t only Crude Oil futures Trump managed to pull down either, global financial markets were down thanks to his decision.
“Trump’s sudden hard-line on China tariffs has spooked investors, who are scrambling to reduce their risk levels in the markets,” said the head of research at futures brokerage London Capital Group, Jasper Lawler. “The prospect of months of trade talks being derailed by Trump has raised concerns over future demand for oil,” he added.
Although I don’t like to dwell on rumours, there are some reports that say China may cancel or cut short trade talks scheduled with Washington this week. For me it just seems like a likely possibility but who knows.
The recent fall in oil prices is seen by some analysts as worrisome but we mustn’t forget that crude production in the U.S. has surged by more than 2 million barrels per day since early 2018 to a whopping 12.3 million barrels per day. That means the United States is now the world’s biggest producer of oil putting them ahead of Russia and Saudi Arabia. By looking at it from this angle I can see why there are other analysts who are predicting a further rise in oil output from the United States.