Oil prices rose back up by around 2% on Friday morning, after one of the biggest falls in years during Thursday night, as United States President Donald Trump imposed even more tariffs on Chinese imports, resulting in the intensification of the trade war between the two major countries.
China and the United States are also the world’s two biggest economies as well as the two largest crude oil customers.
Brent crude futures LCOc1 experienced a drop of more than 7% on Thursday, with this being the biggest fall in value in more than three years.
U.S. West Texas Intermediate (WTI) crude futures CLc1 also fell steeply in value, by nearly 8%, thus experiencing its worst day in more than four years.
This major fall in prices ended a very weak rally that was built around regular reductions in the size of the United States’ inventories. This happened even though global demand was fluctuating as a result of the ongoing trade dispute between China and the United States.
Brent crude futures managed to rise by 2% to a value of €55.65 per barrel by early Friday, whilst WTI crude futures rose by 1.6% to a value of €49.43 for every barrel.
In a statement released on Thursday, Trump said that he will be imposing a 10% tariff on €270.53 billion ($300 billion) worth of Chinese imports from September 1. He also said that he might raise tariffs even more if China refrains from agreeing on a trade deal in a quicker manner.
This shocking announcement means that Trump’s tariffs will be imposed on almost of all China’s imports to the United States, whilst also marking a sudden end to what was a temporary truce between the two countries in the ongoing trade war. This trade war has managed to disrupt plenty of global supply chains whilst also heavily irritating financial markets.
Stephen Innes, the managing partner at VM Markets, told Reuters through email that such gains in value may have come as a result of investors reconsidering the move by Trump and its possible effects on the market.
He stated that “Just like in shooting wars: the build-up and each stage of campaigns have triggered risk-off events but with diminishing impact over time.” He also added that “Much the same could be true right now about the escalation of tariffs (and) with time, investors have managed to sidestep them and returned to the familiarity of focusing on the data, which in the case of the U.S. economy, still looks good.”
During the second quarter of the year, the United States’ economy managed to grow by 2.1% according to government data that was published on July 26, which although beating economists’ expectation, was still lower than the growth experienced in the first quarter.
However, there were signs of the economic effect of the trade dispute between the two countries, with both of the countries experiencing a slowdown in their manufacturing sector during July, with the United States’ manufacturing activity in particular dropping to almost a three-year low.
This economic slowdown has resulted in the United States lowering its demands for crude oil, thus affecting the market greatly, with it being the world’s biggest oil consumer.
Over the last four weeks alone, oil refineries at the United States managed to process an average of 17.2 million barrels every day, which is still 1.3% less than the amount processed during the same period last year.