The price of oil experienced its third consecutive week of decline as anxieties surrounding the escalating trade war between the United States and China continue to unsettle global markets.
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Both West Texas Intermediate crude (CL=F) and Brent futures (BZ=F) concluded the week over 2% lower following the implementation of US tariffs on specific Chinese imports on Tuesday, and China’s subsequent retaliatory measures. This ongoing trade dispute has cast a shadow over the energy sector, raising concerns about potential disruptions to global economic growth and oil demand.
Trade War Tensions Fuel Bearish Sentiment in Oil Markets
Dubai-based economist Hamza Zraimek, in a recent analysis, noted that while crude oil futures saw a slight uptick, the overall trend remains predominantly bearish. “Ongoing trade tensions between the US and China have raised fears of a global economic slowdown, potentially weakening oil demand,” Zraimek stated. The cancellation of a planned call between President Trump and Chinese President Xi Jinping further dampened hopes for a swift resolution to the trade conflict.
Earlier in the week, President Trump reached an agreement with Canada and Mexico to postpone the implementation of 25% tariffs for at least a month. However, a report from Reuters indicated that President Trump informed Republican lawmakers of his intention to announce reciprocal tariffs on American imports, potentially exacerbating downward pressure on oil prices due to concerns about diminished economic growth and reduced demand.
Supply Restrictions Offset by Tariff Threats
The looming threat of escalating tariffs has overshadowed the potential impact of supply restrictions on oil prices. On Friday, oil futures experienced a modest rebound in response to the announcement of the first US sanctions against Iranian oil production under the current Trump administration. WTI gained less than 1%, settling just below $71 per barrel, while Brent futures closed above $74 per barrel. These sanctions primarily target individuals, companies, and three tankers involved in transporting Iranian oil to China.
Despite Friday’s slight gains, WTI has effectively erased its year-to-date gains, while Brent remains less than 1% higher since the beginning of January. The persistent uncertainty surrounding the US-China trade war continues to weigh heavily on investor sentiment, contributing to the downward pressure on oil prices.
Conclusion: Trade War Uncertainty Continues to Dominate Oil Markets
The protracted trade dispute between the US and China remains a significant factor influencing oil price volatility. The potential for further escalation of the trade war continues to raise concerns about global economic growth and oil demand, contributing to the prevailing bearish sentiment in the market. While supply-side factors, such as sanctions on Iran, may offer temporary support to prices, the overarching influence of the trade war is expected to persist. As the situation unfolds, investors will closely monitor developments in the trade negotiations and their potential impact on the global economy and oil markets.
