Oil Drops Amid Trade War Concerns, Offset by Potential Supply Disruptions
Oil prices declined on concerns that the U.S.-China trade conflict could dampen global economic growth, eclipsing President Trump's plan to increase economic pressure on Iran.
Market Fluctuations
West Texas Intermediate (WTI) crude dropped approximately 1.5%, trading below $72 per barrel after a volatile start to the week. Tariffs announcements and subsequent delays on duties for Canada and Mexico contributed to market volatility.
Iran Sanctions
On Tuesday, Trump directed Treasury Secretary Scott Bessent to implement sanctions and bolster enforcement of existing measures to intensify pressure on Tehran.
Weak Demand Outlook
Analysts believe that the trade war will hinder global growth and, consequently, oil demand. Bjarne Schieldrop, chief commodities analyst at SEB AB, emphasized that supply disruptions can mitigate these concerns.
Inventory Data
Traders await inventory data from the U.S., with the American Petroleum Institute reporting a 5 million barrel increase in crude inventories last week.
China's Response
Beijing responded swiftly with targeted retaliatory measures against Trump's tariffs. While this may not impact U.S. crude exports to China, it could hinder economic growth and global consumption.
Gaza Strip Proposal
During a press conference with Israeli Prime Minister Benjamin Netanyahu, Trump proposed U.S. control and reconstruction of the Gaza Strip. The suggestion included the deployment of U.S. troops to secure the area.
Market Health
Crude prices have retreated significantly from last month's highs above $80 per barrel. While Trump-led volatility has influenced the decline, signs of weakness in the physical market are also evident. Brent's nearest timespread, an indicator of market health, closed at its weakest level in four weeks.