- Data on Wednesday revealed that US crude inventories rose by 3.6 million barrels.
- Trade tensions escalated after Trump imposed tariffs on Canada, Mexico and China.
- OPEC+ plans to start unwinding its output cuts in April.
Oil prices steadied on Thursday after reaching fresh lows in the previous session due to demand worries. Data revealed an unexpected increase in crude inventories. At the same time, trade wars ignited by Trump’s tariffs dimmed the outlook for the global economy. On supply, traders worried about oversupply with OPEC+ increasing output starting in April.
Data on Wednesday revealed that US crude inventories rose by 3.6 million barrels, well above estimates of a 341,000 barrel increase. The jump indicated weaker demand last week, putting pressure on oil prices.
Meanwhile, trade tensions escalated throughout the week after Trump imposed tariffs on Canada, Mexico and China. He implemented a 25% tariff on Canada and Mexico. Meanwhile, he added a 10% tariff on Chinese goods. The response from these countries was immediate, with some imposing counter-tariffs and others promising to do so soon.
The rising global trade tensions have raised fears of weaker oil demand. Moreover, tariffs on China will significantly hurt demand since it is a major oil consumer. The US will also feel the impact of these wars, further reducing oil demand.
Moreover, Trump promised to impose more tariffs in April, which would affect more countries. These tariffs will also reheat inflation, especially in the US, forcing the Fed to keep interest rates high. High borrowing costs curb economic growth, reducing oil demand.
However, recent data has shown a slowdown in the US economy, raising Fed rate cut expectations. In the short term, the economy will likely suffer. However, if the trade wars end, the economy will rebound.
US private employment (Source: ADP Research Institute)
Market participants also paid attention to US data showing slower job growth in the private sector. Weak employment will put pressure on the Fed to lower borrowing costs. Meanwhile, business activity data revealed a rebound in the services sector, giving a mixed picture of the economy.
All eyes will now shift to the nonfarm payrolls report for more clues on monetary policy. According to experts, job growth in the US economy might increase slightly. Meanwhile, the unemployment rate will likely hold at 4.0%.
Elsewhere, market participants worried about oversupply after reports that OPEC+ will start unwinding its output cuts in April. Increased supply and weak demand support a bearish outlook for oil.
