- On Wednesday, Trump imposed sanctions on Iran.
- Agencies like OPEC and major banks have downgraded their forecasts for oil demand and economic growth in the US.
- Crude inventories rose by 515,000 last week, slightly higher than the forecast.
Oil extended gains after the US imposed sanctions on Iranian oil imports. Moreover, prices are poised for a weekly gain amid concerns about supply. However, concerns about demand stemming from Trump’s tariff decisions are curbing gains.
Oil futures (Source: ICE, Nymex)
Trump imposed sanctions on Iran on Wednesday, targeting, in part, Chinese oil imports from the country. The sanctions will have an impact on the global oil supply by tightening the market. A tight market is bullish for prices. At the same time, OPEC announced more output cuts in some producer countries to compensate for overproduction.
However, on the demand side, agencies like OPEC and major banks have downgraded their forecasts for oil demand and economic growth in the US. The downgrade comes after Trump’s tariff moves that left investors scrambling for safety in non-US assets.
Last week, oil prices tumbled after the US president imposed and then paused tariffs on several countries. The move put the US economy in a vulnerable position as cash flowed to more stable economies, such as the Eurozone. At the same time, risk appetite declined, putting pressure on commodities such as oil.
Furthermore, Trump escalated the trade war between the US and China by hiking tariffs on the country to 145%. The ongoing trade war between these major economies has raised fears of a recession. Poor growth means oil demand will go down.
However, there was some relief when Trump exempted some goods from the tariffs. Still, as long as the trade war continues, investors will worry about the risk of a recession.
Elsewhere, market participants paid attention to data showing a surge in crude inventories. Stocks rose by 515,000 last week, slightly higher than the forecast of 507,000 barrels. The increase indicated lower demand during the week.
Meanwhile, data from the US revealed stronger consumer spending. Retail sales increased by 1.4% in March, above estimates of a 1.3% increase. The jump from the previous month eased fears of a recession, boosting oil.
However, remarks from Fed officials have weighed on sentiment. Powell noted that there was no rush to lower borrowing costs. The Fed will likely wait to see the impact of Trump’s tariffs before considering a rate cut.
