- The US is prepared to lower tariffs on Chinese goods to 50%.
- OPEC+ might increase its output for a second consecutive month in June.
- Oil stocks increased by 244,000 last week.
Oil paused its decline on Thursday as sentiment improved on a likely trade deal between the US and China. At the same time, risk appetite improved after Trump stopped his attacks on Fed Chair Powell. However, prices fell over 2% in the previous session on reports that OPEC+ might increase output in June.
The US Treasury Secretary Scott Bessent recently said the tariffs between China and the US were unsustainable. Moreover, he stated that the US was prepared to lower tariffs on Chinese goods to 50%. Such a move would enable the two countries to negotiate a more favorable trade deal and potentially end the war. This would ease economic worries and allow most assets, including oil, to rally. However, neither is willing to be the first to lower these tariffs.
Meanwhile, the attacks on the US Federal Reserve stopped after Trump said he had no intention of firing Powell. Trump is worried that the Fed is taking too long to cut interest rates, and the economy is declining.
Meanwhile, Powell has remained cautious, waiting for more evidence that lower borrowing costs will be good for the economy. The attacks on the central bank had raised concerns about its independence. Moreover, it had further clouded the outlook for the US economy. As a result, sentiment improved when Trump pulled back his comments.
Oil (Source: NYMEX)
Oil prices fell on Wednesday after reports indicated that OPEC+ might increase its output for a second consecutive month in June. Such an outcome would result in a surge in supply, which would dampen prices. At the same time, traders were worried about the conflict over output quotas among member nations.
Additionally, downward pressure on prices came from demand worries after a surprise jump in crude inventories. Oil stocks increased by 244,000 last week, surprising economists who had expected a 770,000 drop. However, the report also showed that oil imports rose.
Meanwhile, a separate report revealed a decline in business activity in the US economy. The composite PMI eased from 53.5 to 51.2. Service sector activity dropped while manufacturing improved slightly. The downbeat report may be an early sign of the impact of Trump’s tariffs. More such reports will put pressure on the Fed to lower borrowing costs.
