WTI slumps to near $69.00 as Trump prepares to impose additional tariffs on China
- The Oil price slides sharply amid fears of Trump tariffs on China.
- US President Trump is expected to slap 10% additional tariffs on China on March 4.
- European leaders, including Zelenskyy, have agreed to structure Ukraine peace plan.
West Texas Intermediate (WTI), futures on NYMEX, tumbles to near $69.00 in European trading hours on Monday. The Oil price faces strong selling pressure as investors are cautious amid fears that United States (US) President Donald Trump will impose additional 10% tariffs on China for pouring drugs through Canadian and Mexican borders into their economy on March 4.
US President Trump had already slapped the same level of tariffs in the first week of February. More levies on China by the US would diminish the competitiveness of Chinese products in the global economy. Such a scenario would weaken demand for Chinese products, which will weigh on the Oil price, given that China is the largest importer of Oil in the world.
Meanwhile, Caixin Manufacturing Purchasing Managers’ Index (PMI) data for February has come in better than expected. The Manufacturing PMI, which gauges activities in the manufacturing sector, rose at a faster pace to 50.8, from the estimates of 50.3 and 50.1 seen in January. Technically, upbeat Caixin Manufacturing PMI indicates strong demand for Oil and boosts its price. However, investors are weighing more on the Chinese economic outlook.
Apart from Trump’s tariff fears, growing optimism over peace between Russia and Ukraine has also weighed on the Oil price. Over the weekend, United Kingdom (UK) Prime Minister Kier Starmer confirmed that European leaders, including Ukrainian President Volodymyr Zelenskyy, have agreed to structure a peace plan for ending the war in Ukraine, which entered its fourth year in February.
Investors expect a truce between Russia and Ukraine will be followed by Europe and the US revoking sanctions on Russia. Such a scenario would allow Russia to infuse Oil into the global market. An increase in seaborne Oil flows will weaken its price.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
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