Oil prices drop as trade tensions rise

Oil prices dropped on Thursday, and the WTI price dipped from $63.1 to $60.1 per barrel. If oil prices retreat, they may encounter support near $55.1 per barrel, while resistance may be found near $73.1 per barrel.

US President Donald Trump has been using threats of imposing trade tariffs as a negotiation tool to further his agenda with other countries. Trump’s tariffs may spark global trade wars and are causing turmoil in markets. 

Last week, Trump announced a 10% tariff on all imports into the US, as well as an additional 25% tariff on all imported automobiles. On Wednesday, however, Trump announced that he will pause tariffs for 90 days, against all countries, except China. 

The situation between the US and China is continuously escalating, with both countries announcing heavier tariffs against each other every day. Trump announced last week 34% duties on imports from China, and China retaliated with 34% tariffs on US imports, causing the crisis to escalate. Trump further exacerbated matters on Monday by imposing additional 50% tariffs against China. China raised retaliatory tariffs on US goods to 84%, and on Thursday, the US increased tariffs on China to 145%, and China retaliated by increasing tariffs on US products to 125%. The potential of a trade war between China and the US is lowering the oil demand outlook, causing oil prices to plummet.  

Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve kept interest rates unchanged at its policy meeting in March. FOMC policymakers voted unanimously to maintain the federal funds rate to a target range of 4.25% to 4.50%. Markets are pricing in two more rate cuts this year, with the first rate cut in June, while a third rate cut is also considered possible.

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Written by:
Myrsini Giannouli

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