Background on Key Players and Context
The global economy is currently facing uncertainty due to aggressive tariffs imposed by U.S. President Donald Trump on various imports, which has led many economists to predict a potential global recession in 2019, according to a Reuters survey.
China, one of the world’s largest oil consumers along with the United States, has responded to these tariffs by imposing its own duties on U.S. imports, escalating trade tensions between the two nations. This trade war has caused a significant downward revision in oil demand and price forecasts by analysts.
The U.S. trade deficit in goods widened to a record high in March, as companies rushed to import goods before Trump’s tariffs took effect. This suggests that trade was a significant drag on economic growth during the first quarter of 2019.
Impact on Businesses
The repercussions of Trump’s trade war were felt in the corporate world on Tuesday, as delivery giant UPS announced plans to cut 20,000 jobs to reduce costs. Meanwhile, automaker General Motors revised its forecasts and postponed its investor meeting in anticipation of potential changes in trade policy.
Trump was expected to soften the impact of his auto tariffs through an executive order combining credits with relief from other duties on parts and materials, following pressure from automakers. British oil company BP reported a 48% drop in net income, attributed to low refining margins and gas trading.
Oil Market Developments
On Tuesday, oil prices fell around 3%, reaching a two-week low as investors braced for OPEC+ to increase production and worried that Trump’s tariffs could negatively impact the global economy and curb fuel demand.
- Oil Price Movement: Brent crude futures dropped $1.70, or 2.6%, to $64.16 per barrel by 11:34 a.m. CDMX, while West Texas Intermediate (WTI) crude fell $1.55, or 2.5%, to $60.50 per barrel.
- Approaching Two-Week Lows: Both benchmarks were on track for their lowest closes since April 10.
OPEC and its allies in the OPEC+ group are expected to suggest accelerating production hikes for the second consecutive month in June, according to sources who spoke with Reuters last week.
- U.S. Inventory Data: Expected oil inventory data releases on Tuesday (general market) and Wednesday (EIA) show analysts predicting a 0.5 million barrel increase in U.S. oil reserves during the week ending April 25.
- Accumulating Reserves: This would mark the fifth consecutive weekly accumulation, contrasting with a 7.3 million barrel increase in the same week last year and an average accumulation of 3.2 million barrels over the past five years (2020-2024).
Key Questions and Answers
- What is driving the recent drop in oil prices? Investors are concerned about OPEC+ increasing production and the potential negative impact of Trump’s tariffs on the global economy, which could reduce fuel demand.
- Who are the key players mentioned in this article? The key players include U.S. President Donald Trump, China, the Organization of the Petroleum Exporting Countries (OPEC), and oil companies like BP, Exxon Mobil, and Chevron.
- How have businesses been affected by the ongoing trade war? Companies like UPS and General Motors have announced job cuts and revised forecasts due to uncertainties surrounding trade policies.
- What are the expectations for OPEC+ production increases? Several OPEC and OPEC+ members are expected to propose accelerating production hikes for the second consecutive month in June.
