DTN Oil Update
Oil Futures Fell as Fears Over Trade Tariffs Persists
HOUSTON (DTN) -- Oil futures dropped Monday morning amid sluggish global demand, driven by the celebration of the Chinese Lunar New Year and on concerns of upcoming trade tariffs to be imposed by the Trump administration on multiple countries, including China.
The oil futures market remains focused on the possibility that the Trump administration policy could impose soon trade tariffs on China, Mexico and Canadas, which could negatively impact U.S. consumer prices.
"We believe the marginal impact of China's tariffs from 10% to 60% is not linear. Local and foreign producers in China will react to different level of tariff, discounting the impact of higher tariff. They have been shifting their production offshore due to commercial and geopolitical concerns," said Raymond Yeung, chief economist of Greater China at ANZ Research.
Yeung expects that President Donald Trump may announce his tariff trade plan for China around Jan. 28-Feb.4, which coincides with the period of the Lunar New Year festivities.
With only one week in office, Trump has already provided an example of what to expect from his administration when countries do not comply with his demands.
On Sunday, President Donald Trump threatened to impose retaliatory tariffs of 25% on imported goods from Colombia, after the Colombian government refused to accept deported immigrants brought back by two U.S. military flights. However, the Trump administration later confirmed that Colombia had agreed to the conditions. Colombia is one of the largest oil producers in Latin America and a key supplier of heavy sour crudes for U.S. Gulf and West Coast refiners.
U.S. refiners also import large volumes of Canadian and Mexican crude oil, which could be affected by 25% retaliatory trade tariffs that the U.S. government has threatened to impose on goods imported from Canada and Mexico, its main trade partners.
The February NYMEX WTI futures contract dropped by $0.79 to $73.87 bbl, and the March ICE Brent futures contract fell by $0.71 to $77.79. The February RBOB futures contract fell by $0.0058 to $2.0432 gallon while the front-month ULSD futures contract dropped by $0.0630 to $2.4532 gallon.
The U.S. Dollar Index dropped by 0.12 to 107.62 against a basket of foreign currencies.
Maria Eugenia Garcia can be reached at Maria.Garcia@dtn.com