Oil prices fell on Wednesday, matching a trend on Wall Street after President Donald Trump said he planned to implement tariffs on steel and aluminum which many analysts believe could lead to a trade war. Anadarko photo.
Oil prices tumbled on Wednesday, following the same path as financial markets which were under pressure after remarks by US President Donald Trump concerning import tariffs on steel and aluminum and a possible trade war.
As well, data from the US Energy Information Administration showed an increase in crude inventories and production.
By 1:28 p.m. EST, benchmark Brent crude was down 2.57 per cent, or $1.69 to $64.10/barrel. US WTI dropped by 2.75 per cent or $1.72 to $60.88/barrel. The Canadian Crude Index fell to $37.96.
According to Reuters, the resignation of Gary Cohn, economic adviser to Trump, tempered investors’ appetite for risk and ultimately triggered a drop in stocks on Wall Street. Cohn is seen as staunchly opposed to government protectionism.
Cohn resigned from the Trump administration after losing a battle with the president over steel and aluminum tariffs. Since Trump’s announcement, a number of major world powers, including the European Union and China, have argued such tariffs could result in retaliatory actions which could then trigger a global trade war.
“The generalized market anxiety over what could end up being a global trade war is dragging everything down,” John Kilduff, partner at investment manager Again Capital told Reuters. “It does not bode well for future economic growth and increased energy demand.”
Cohn’s resignation could be interpreted as meaning Trump will move forward with his decision, say industry analysts Drillinginfo.
“Even if the new plan does not spark a global trade war, it will still drastically impact the US shale industry and could act as the main catalyst in slowing down US production growth right when the US is set to pass Russia and become the top oil producer in the world,” the firm wrote in its latest weekly report.
According to the US Energy Information Administration, US crude inventories rose by 2.4 million barrels last week, which was lower than analysts’ expectations of a rise of 2.7 million barrels.
“The smaller-than-expected inventory build led to swift short covering. However, I don’t believe that this strength will be long-lived with rising U.S. production and a strengthening dollar,” Phillip Streible, senior market strategist at RJO Futures told Reuters.
Crude stocks at the Cushing, Oklahoma, delivery hub dropped by 605,000 barrels, according to EIA data.
The EIA also reported that US crude production hit a new record high per day last week of almost 10.4 million barrels, which dampened investors’ enthusiasm.
As well, the EIA predicts that by the fourth quarter of this year, US crude production could hit an average of 11.17 million barrels per day (b/d), up from a previous forecast of 11.04 million b/d.
Such an increase would make the US the biggest producer in the world, besting Russia and OPEC’s largest producer, Saudi Arabia.