(Bloomberg) — Oil prices continued their downward trajectory in early 2024 as U.S. President Donald Trump’s announcements on trade policies generated a high level of uncertainty. The conflicting statements about potential tariffs on Canada, Mexico, and the European Union sent markets into disarray, further impacting energy markets and global economies.
The Downward Spiral of Oil Prices
U.S. West Texas Intermediate (WTI) crude oil futures settled at a new low for the year, trading below $69 per barrel for the first time in nearly two years. The drop was driven by a combination of market uncertainty and broader economic headwinds. As tensions in U.S.-China relations escalate, fears of multiple trade wars have weighed heavily on energy markets.
Uncertainty and Conflict in U.S. Trade Policy
U.S. President Donald Trump’s announcements created significant confusion in the global markets. On Wednesday, he first stated that tariffs on Canada would move forward, before later reversing course and declaring that they would be implemented in April 2024, about a month later than originally planned. This inconsistency sent shockwaves through energy markets.
Additionally, Trump announced plans to impose tariffs on the European Union (EU) ahead of his discussions with automakers on potential tariffs on U.S.-manufactured vehicles. These announcements raised concerns about the impact on trade relations and global supply chains. The prospect of increased crude oil flows from the EU was particularly worrying, as it could further disrupt markets.
Economic Implications for the U.S. and China
The uncertainty surrounding Trump’s trade policy has had a ripple effect across global economies. In the U.S., weakness in consumer and business confidence is expected to further undermine consumption, potentially dragging down economic growth. Similarly, China, the world’s largest oil importer, faces growing pressure from trade tensions with the U.S.
Geopolitical Developments Affecting Oil Markets
Beyond U.S. trade policy, other geopolitical developments have also impacted energy markets. The White House confirmed President Volodymyr Zelenskiy’s visit to the U.S., signaling that Russian crude oil may flow more freely in the near future if a peace deal is reached with Ukraine. This development has been met with cautious optimism by market participants.
On the other hand, Iraq has reached an agreement with the Kurdistan region to resume oil exports. This could inject additional stability into the Middle East oil markets, providing much-needed support during a period of heightened tensions and sanctions.
Impact on Energy Markets
The conflicting trade announcements have created a highly volatile environment for energy markets. The U.S. diesel market has also shown signs of weakening demand, with futures prices dropping by 1.9% following government data that revealed significant increases in storage levels.
The Role of OPEC+ and the Biden Administration
OPEC+ is expected to continue its cautious approach to output decisions, given the risks posed by geopolitical tensions and U.S.-China relations. Meanwhile, President Joe Biden’s administration has made it clear that it will respect the existing oil price floor but will explore ways to gradually increase production.
The Legacy of Trump’s Trade Policies
While U.S. trade policy under Trump has been marked by uncertainty and conflicting announcements, the broader implications for global markets remain significant. The potential for increased flows from the EU could have a direct impact on energy prices, while the visit to Iraq signals a shift in U.S. foreign policy priorities.
Conclusion
The combination of U.S. trade policy uncertainty, geopolitical developments, and economic headwinds has created a challenging environment for energy markets. As the year progresses, closely monitoring the evolving trade landscape will be critical for investors and market participants alike.
