How Does the Tariff Talk Affect the Oil Industry?

Oil prices are lower this morning sparked by increasing trade war fears between China and the U.S. after President Trump sought to impose another $200 billion worth of tariffs yesterday.

In addition to this new swing in the escalating trade tensions, Trump threatens to impose another $200 billion worth of tariffs if China retaliates with a counterpunch of tariffs.  That means that potentially $450 billion in tariffs could be imposed on China, which is something the stock market was not forecasting. Consequently, this rhetoric is causing the DOW Jones Industrial Average to trade lower by 360 points at writing this morning and Chinese equities to be near 52 week lows. 

Before this latest bout, China responded to a previous U.S. escalation by imposing $50 billion in tariffs, including a 25% tariff on U.S. oil imports. As far as how this affects the oil industry, it could potentially be bearish for the WTI-Brent spread. OPIS reports that China imports around one-fifth of all U.S. crude exports. Therefore, if China already wanted to impose a 25% tariff on U.S. oil imports before Trump’s threat last night, the energy complex is concerned that China may respond with a much more devastating tariff on U.S. oil imports. This would decrease demand for WTI crude and thus increase demand for Brent crude, subsequently further widening the spread between the two benchmarks, which is already trading at a tremendously wide differential of $10.20/barrel. August WTI is currently trading lower by $0.68 to $65.17/barrel and Brent is trading higher by $0.10 to $75.44/barrel.

Coupling this tariff talk with the OPEC meeting in Austria on Friday means we’re in store for a volatile week of trading. July RBOB currently trades lower by $0.0086 to $2.046/gallon and July ULSD is down by $0.0057 to $2.1259/gallon. If you are a customer that is looking to fix the price of your fuel, this expected volatility may provide you with the opportunity to do so depending on your needs.

Call your representative here at Guttman Energy if you have any questions!

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I enjoy helping our customers understand the commodity markets and pricing solutions we can offer to best fit their business. My supply and trading experience in gasoline and distillate products allow me to provide a comprehensive view of our industry to make our customers feel comfortable with their fuel-related decisions.

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