[NEW YORK] Oil prices climbed more than 4 per cent on Wednesday, bouncing back from four-year lows earlier in the session, after US President Donald Trump said he would further increase tariffs on China but pause the tariffs he announced last week for most other countries.
Trump authorised a 90-day pause and raised the tariff rate for China to 125 per cent, effective immediately. The previously announced 104 per cent tariff on China kicked in earlier on Wednesday.
Brent futures settled up US$2.66, or 4.23 per cent, to US$65.48 a barrel. US West Texas Intermediate crude futures closed US$2.77, or 4.65 per cent, higher at US$62.35.
Both contracts had lost about 7 per cent earlier in the session before the reversal.
“We’ve reached a turning point in the trade conflict with Trump giving the countries that have shown desire to work on a deal to get rid of tariffs some time to work it out,” said Phil Flynn, senior analyst with Price Futures Group.
“What Trump is doing is putting China out on an economic island all by themselves,” Flynn said.
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China announced additional tariffs on US goods, imposing an 84 per cent tariff on US goods from Thursday.
“I think the market expects a China deal to come down the pipe,” said Bob Yawger, director of energy futures at Mizuho. “We seem to be making inroads into some countries that the Chinese were hoping to lean on.”
However, the escalating trade war between China and the US continued to pressure oil prices, analysts said.
The trade conflict is stoking fears of a global recession, said UBS analyst Giovanni Staunovo. “While oil demand has likely not suffered yet, rising concerns of weaker oil demand over the coming months require lower prices to trigger supply adjustments to prevent an oversupplied market,” Staunovo added.
Countermeasures in Canada, a major US trading partner, also took effect on Wednesday.
Countries in the European Union agreed on Wednesday to impose 25 per cent tariffs on a range of US imports in a first round of countermeasures.
A decision last week by the Opec+ group of producers to raise output in May by 411,000 barrels per day, which analysts say is likely to push the market into surplus, limited oil‘s gains.
In the US, crude inventories rose by 2.6 million barrels to 442.3 million barrels last week, the Energy Information Administration said, compared with analysts’ expectations in a Reuters poll for a 1.4-million-barrel rise.
“Exports are on the lower level and we will have to see if we are going to lose access to the China market, and whether we will see a diminished export situation going forward,” said John Kilduff, partner with Again Capital in New York.
The operator of the Keystone oil pipeline system in Canada and the United States issued a force majeure notice on Wednesday after a leak in North Dakota, according to media reports.
The pipeline was shut on Tuesday after an oil spill near Fort Ransom, North Dakota. REUTERS
