DTN Oil Update
Oil Futures Plunged Nearly 5% Due to Tariffs, Ample OPEC+ Supply
HOUSTON (DTN) -- Oil futures plummeted nearly 5% on Thursday, driven by concerns of a higher-than-expected impact of the tariff war on global economic growth, coupled with weak demand and abundant supply fundamentals.
The front-month NYMEX WTI futures contract for May delivery recovered slightly from the steep fall recorded Thursday morning, settling at $66.26 bbl, down by $4.97 while the May ICE Brent futures contract dropped by $4.99 to $69.96 bbl. The May RBOB futures contract plunged by $0.1747 to $2.1563 while the front-month ULSD futures contract declined by $0.1387 to $2.1833 gallon.
The U.S. Dollar Index continued its downward trend, dropping by 1.56% to 101.83 against a basket of foreign currencies, including the euro, Japanese yen, British pound, Canadian dollar, among others.
The bearish sentiment in the oil futures market was supported by anxiety caused the announcement of sweeping trading tariffs to be imposed by the Trump administration on all countries, with a higher rate levied on China, in the following days.
U.S. President Donald Trump announced Wednesday, April 2, a 10% baseline tariff for all countries effective April 5 and unveiled additional reciprocal tariffs on China and the European Union. However, the tariff will not be imposed on imports from Mexico and Canada for now. Both countries export crude to U.S. refineries, which combined represent approximately 70% of the total oil imports in the United States.
Trump announced reciprocal tariffs on several countries trading with the United States, including an additional 34% trade tariff on imported goods from China, 20% on imports from the European Union, and a 24% import tax for Japan, among others. These tariffs will begin April 9.
In the last two months, the U.S. government has already imposed 20% tariffs on imports from China, 25% on steel and aluminum from Canada and Mexico, and 25% on imported goods from the European Union, all of which have responded with retaliatory tariffs against U.S. imports.
Also, the United States imposed a 25% trade tariff on foreign car imports, which will be effective Thursday.
However, the higher tax imposed on China took market participants by surprise. A setback in China's economic growth due to the tariff war with the U.S. will further affect the already weak global demand for energy products as China is the world's main buyer of crude oil and gas.
Due to the potential impact of tariffs on oil trade, some analysts have already lowered their oil price forecast to an average of $70 bbl for 2025.
The additional oil output from OPEC+ countries is expected to increase the downward pressure on oil prices. The oil cartel was scheduled to offer an extra 2.2 million bbl starting this week.
