Oil prices saw a significant increase for the first time following the initiation of a trade war by US President Donald Trump against several of America's trading partners. This rise came as some countries were granted a temporary break on Wednesday. The global benchmark Brent crude rose above $65 per barrel after experiencing a decline for four consecutive sessions and dropping below $60 for the first time since 2021. West Texas Intermediate also climbed above $61.
Trump declared a 90-day halt on imposing higher reciprocal tariffs on numerous trade partners after midnight. This development had a positive impact on broader markets, causing stocks and commodities to surge as it offered hope of relief in the ongoing international trade conflict, potentially lowering the risk of a recession. The details of which nations would benefit from the tariff relief were not immediately clear, while the trade tensions between China and the US continued to escalate, with Trump increasing duties on China to 125%.
According to Rebecca Babin, a senior energy trader at CIBC Private Wealth Group, the recent surge in crude prices was influenced by a broader market relief rally, but the impact of the tariff pause on other countries was perceived to be relatively minor compared to the effect of heightened tariffs on China, a significant driver of crude demand growth.
Prior to Wednesday's developments, traders had heavily invested in bearish option bets and short positions, leaving room for sharp surges if positive news led to a rush to cover these positions.
The drop in oil prices was also partly attributed to the decision by the OPEC+ alliance to increase output at a faster pace than initially anticipated. While it was speculated that this move was influenced by Riyadh's willingness to accommodate Trump's preference for lower fuel prices for political reasons, OPEC+ delegates clarified that the decision primarily targeted quota violators such as Kazakhstan and Iraq. This caused concerns that the existing anticipated oil surplus would be further exacerbated.
Moreover, oil futures saw a notable decline, suggesting a looming oversupply in the market in the coming months. Despite this trend, market participants cautioned that predicting future balances with certainty was challenging.
Scott Shelton, an energy specialist at TC ICAP, highlighted the uncertainty surrounding oil valuation amid the ongoing tariff disputes, indicating that while it might present a buying opportunity, comprehending the market landscape would remain challenging until the trade conflicts were resolved.
Additionally, oil prices received some support when a crucial pipeline carrying Canadian crude to US markets was closed due to a spill, potentially leading to supply constraints in Cushing, Oklahoma, the delivery point for US benchmark futures.