Crude oil prices are under pressure after Present Donald Trump took away some of the growing optimism of a United States/Chinese trade deal, along with some non-sourced OPEC talk about raising oil production at their next June meeting and weaker than expected manufacturing data in Europe.
Crude oil prices fell back yesterday as most oil traders agreed that Iran lied about their nuclear ambitions, but really, they were old lies that we have already heard before. Because there was no real new information, the market then focused mainly on the soaring U.S. dollar and concerns that red-hot global demand may ease as data in Europe was less than overwhelming.
Crude oil bears are scattering after China is signaling they will start to open their markets and take steps to guard foreign intellectual property. The speech by the Chinese President seems to suggest that President Donald Trump’s tactics of playing hardball is having the desired effect. China, of course, had its currency pegged to the dollar until 2014 and has charged many countries unfair tariffs and realized that they were trying to defend undependable trade practices.
There are a number of key events this week but inflation and the path in which the Fed is tightening remains at the forefront. This has literally taken the stability and liquidity out of the market which in turn has made other situations, i.e. the trade war, have a greater and more immediate impact on market conditions. CPI, a leading inflation indicator, is due Wednesday morning at 7:30 a.m. Central.
Planes and cars and steel is one thing, but now it’s serious because we are talking soybeans. China decided to hit at the heart of U.S. China trade by taxing the beloved American soybean. The move was viewed by the market as the first real sign that the potential trade war is serious because China loves and need U.S. soybeans. Historically, China introduced the United States to the soybean and we have been happy to sell them back to them.
The crude oil sell-off was just downright crazy. Oil got caught up in trade war fears, tech wreck fears, OPEC/Non-OPEC compliance fears, and a build in Cushing, Okla., oil stocks, as reported by Genscape. Stocks had the worst start to April since 1929, but really the magnitude of this sell off was a big April’s Fools Day joke that just one day late.
So far, China’s response has only been on the aluminum and steel tariffs, announced by the White House last month, and not on the proposed $60 billion in annual tariffs against Chinese products. This shows Beijing is unwilling to enter a trade war with the United States, knowing that it has more to lose than to win. However, trade dispute will continue to dominate investors’ decisions heading into Q2.