- Tariff uncertainty has driven investors from risky assets to safer ones.
- Data on Wednesday revealed a smaller-than-expected increase in US crude inventories.
- US inflation increased by 0.2%, missing estimates of 0.3%.
Oil prices pulled back on Thursday as global growth concerns dimmed the outlook for oil demand. Prices gained around 2% in the previous session due to a smaller-than-expected increase in US crude inventories. At the same time, downbeat US inflation figures increased Fed rate cut expectations, supporting oil.
In recent weeks, tariff uncertainty has driven investors from risky assets to safer ones like gold and the yen. As Trump aggressively imposes tariffs on its trade partners, the outlook for the global economy dims. Every nation that suffers these tariffs is ready to respond in kind.
As a result, trade wars are on the rise. Currently, the US is in conflict with China, Canada, and the Eurozone. Moreover, Trump plans to implement more tariffs in April. These wars will lead to a decline in global trade. As a result, oil demand will also drop, putting downward pressure on prices.
However, there was some optimism on demand after data on Wednesday revealed a smaller-than-expected increase in US crude inventories. Stocks rose by 1.4 million barrels, missing forecasts of a 2 million increase. At the same time, gasoline stocks fell more than expected, indicating strong demand.
Brent futures & crude inventories (Source: ICE, EIA)
More support for oil on Wednesday came from a weaker dollar. The dollar collapsed after downbeat inflation figures. As a result, oil was cheaper for foreign buyers. According to data, inflation increased by 0.2%, missing estimates of 0.3%. Annually, inflation increased by 2.8% compared to forecasts of 2.9%.
Additionally, data on Thursday showed weaker-than-expected wholesale inflation. The PPI made no change in February. Meanwhile, economists had expected a 0.3% increase. Soft inflation will put more pressure on the Fed to cut interest rates. Low borrowing costs are good for businesses and oil demand.
However, as long as tariff uncertainty remains, predicting what the Fed will do might be challenging. Last week, the US released downbeat employment figures. However, Powel maintained that there was no hurry to lower interest rates. So, despite a clear slowdown in the economy, policymakers might remain cautious. Experts believe Trump’s trade policies might reheat inflation.
Traders will also watch developments with OPEC, which might soon start unwinding its output cuts.
