Oil prices fell sharply, falling into negative territory after rising by $1 in post-settlement trading on Wednesday, April 2, after US President Donald Trump announced the imposition of reciprocal tariffs on trading partners. This decision raised significant concerns that a potential global trade war could negatively impact demand for crude oil.
Brent crude futures initially rose about 46 cents, or 0.6%, to settle at $74.95 per barrel. US West Texas Intermediate (WTI) crude futures also rose 51 cents, or 0.7%, to settle at $71.71 per barrel. However, US oil futures suddenly turned negative after Trump’s press conference, where he announced the imposition of tariffs on major trading partners, including the European Union, China, and South Korea.
The Economic Impact of Trump’s Tariffs
Trump’s remarks on April 2nd were an announcement of “Liberation Day,” which includes the imposition of new tariffs that could significantly impact the global trading system. Although Trump did not provide specific details about the tariffs imposed on countries such as Canada and Mexico, the announcement was a sign of an escalation in the trade war.
Canada, which exports approximately 4 million barrels of crude oil per day to the United States, could find itself in the crosshairs of these tariffs. Trump’s trade policies could lead to increased inflation and slower economic growth, as trade disputes between the United States and the rest of the world escalate. This limits the potential gains for oil prices, as attention now turns to the impact of these tariffs on the global economy.
Implications of the Global Situation on Oil Prices
Ole Hansen, Head of Commodity Strategy at Saxo Bank, explained that the rise in crude oil prices has stalled after Brent crude reached resistance at $75 per barrel. His analysis indicated that the focus has now shifted from the impact of sanctions on supply to the negative impact that Trump’s tariff announcement could have, as this could directly impact global demand and economic growth.
In the same context, Mexico provided some reassurance to investors after Mexican President Claudia Sheinbaum announced that there are no plans to impose reciprocal tariffs on the United States. This statement eased concerns about an escalating trade war between the two countries. However, the global market continues to react to Trump’s threats to impose additional tariffs on Russian oil, in addition to the continued US sanctions on Iran as part of the “maximum pressure” campaign.
The situation in Russia and its impact on the oil market
Separately, Russia, the world’s second-largest oil exporter, imposed new restrictions on some oil export routes. Ships were suspended from docking at the port of Novorossiysk on the Black Sea, a move that comes a day after restricting oil loading from a major pipeline in the Caspian Sea. These measures further complicate the global oil supply picture, especially since Russia produces about 9 million barrels of oil per day, or nearly 10% of global production. Meanwhile, the US crude oil inventory data released by the Energy Information Administration on Wednesday received little attention from investors, despite showing a surprise increase of 6.2 million barrels. This may be attributed to a significant increase in crude oil imports from Canada, reflecting rising tensions over the imposition of tariffs.
Tariffs and their Impact on the Global Economy
Global markets could see serious repercussions from the tariff hike announced by Trump. These tariffs, set at a minimum of 10% on most goods imported into the United States, could pave the way for additional tariffs on some products from other countries, increasing fears of an economic recession. The impact on global demand will be inevitable and could lead to a reduction in overall economic growth forecasts.
Yip Junrong, market strategist at IG, said the tariff announcement took markets by surprise. Speculation had been pointing to a fixed tariff of 15-20%, but the final decision was more stringent. He added that oil prices will be directly affected by the tariff hike, which could lead to price volatility in the near term.
Long-Term Oil Price Forecasts
While trade policy continues to influence oil prices, UBS analysts have lowered their long-term oil price forecasts. The forecast revised down to $72 per barrel for 2025-2026, reflecting concerns about weak market fundamentals. Analysts predict that volatility will dominate the coming period, with the possibility of periodic tariff adjustments depending on negotiations between countries.
An Economic Crisis Coming?
Regarding economists’ forecasts, Tamas Varga, an economic analyst at PVM, confirmed that countermeasures will be imminent. He added that the initial market reaction points to the possibility of an economic recession or even stagflation. Higher tariffs will increase the costs of domestic products, which will significantly hinder the improvement of economic conditions.
Oil Market Reactions to Stockpile Increases
Regarding oil markets, data from the US Energy Information Administration showed a significant increase in US crude oil inventories, reaching 6.2 million barrels last week, contrary to analysts’ expectations of a decrease of 2.1 million barrels.
The Impact of the Trade War on Oil Prices
There is no doubt that the global trade war that Trump is threatening to ignite will significantly impact oil prices. The sudden increase in tariffs could slow economic growth in most parts of the world, contributing to a decrease in demand for oil overall. Meanwhile, trade tensions could disrupt global trade, potentially increasing volatility in energy markets.
Expected Impacts on the Future Economy
Lawrence Summers, former US Treasury Secretary, stated that tariff increases are expected to impose an economic shock similar to that caused by the previous oil crisis. Summers said that such decisions would have a significant impact on economic productivity, with higher prices and unemployment if tariffs continue to escalate.
Ultimately, the current situation presents several economic possibilities that could impact oil markets and global growth. Countries and companies must carefully monitor the situation to ensure they adapt to any changes in trade policies and energy markets.
