Oil, Metals Dip as Trade Conflict Fears Resurface
After President Trump threatened tariffs on Mexico and Canada, oil and industrial metals experienced a decline. Investors sought refuge in gold amid renewed concerns about a global trade war.
The prospect of a trade conflict raises risks for commodities due to potential impacts on consumption and growth. While Trump postponed tariffs on China, soybean and corn markets found some temporary relief.
"The tariff threat is tangible and poses the risk of dampened economic growth," said Ole Hansen of Saxo Bank.
Trump indicated potential import tariffs of up to 25% on goods from Canada and Mexico, key oil suppliers to the US. He also signaled support for domestic oil and gas production, potentially driving up American output and reducing prices.
The dollar's appreciation reduced the appeal of commodities priced in the currency. Brent crude fell below $79 per barrel, while copper dropped beneath $9,200 per ton. Zinc, aluminum, and lead experienced declines of over 1% on the London Metal Exchange.
"Tariffs pose a significant threat to our industrial metals outlook," said Ewa Manthey of ING.
Gold, a potential beneficiary of tariffs, rose 0.4%, while silver futures spiked initially before trimming gains. Mexico is a major silver producer, and it remains uncertain if tariffs will apply to metal imports.
Soybean futures rose in Chicago on the absence of immediate tariffs on China. The lack of US tariffs on China, a significant importer of soybeans and corn, provided optimism that market disruptions may be less severe than anticipated.
However, the threat of China tariffs remains, potentially leading to retaliation against US agricultural products. China has diversified its import sources, reducing the US share of soybean purchases.
Trump expressed plans to replenish the US strategic oil reserve and withdraw from the Paris Climate Agreement. He also lifted offshore drilling bans, potentially increasing domestic oil and gas production.