Oil Leaps Upward on Changes in Trump's Tariff Strategy

But analysts warn that this will harm demand anyway: File Image/Pixabay

After days of steep losses, oil prices made a spectacular about-face on Wednesday as U.S. president Donald Trump paused the tariffs he had imposed on many countries and focused his displeasure on China, which is now being hit to the tune of 125 percent but has no intention of backing down from a trade war.

Brent settled up $2.66, or 4.2 percent, to $65.48 per barrel, and West Texas Intermediate settled up $2.77, or 4.6 percent, at $62.35.

Phil Flynn, senior market analyst with Price Futures Group Inc., explained Trump's strategy by stating, "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.

"What Trump is doing is putting China out on an economic island all by themselves."

Bob Yawger, director of energy futures at Mizuho, added, "We seem to be making inroads into some countries that the Chinese were hoping to lean on."

For his part, Trump stated, "More than 75 Countries have called to negotiate a solution...and have not, at my strong suggestion, retaliated in any way, shape, or form," and because of that  "I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10 percent, also effective immediately."

Nasdaq consequently reported its best day in 24 years, S&P 500 achieved its biggest daily gain since 2008, and the Dow Jones Industrial Average climbed to its biggest day since 2020.

However, Wednesday's gains were said to be capped by concerns of a possible global crude surplus exacerbated by the Organization of the Petroleum Exporting Countries' (OPEC) recent decision to speed up output hikes starting next month.

Also, analysts couldn't surrender the fear that Trump's machinations, although now seen by strategists in a substantially different light, will cause a recession that will harm crude demand: this combined with the prospect of a growing oil supply is a "toxic cocktail," said Helima Croft, global head of commodity strategy at RBC Capital Markets.

Indeed, Rebecca Babin, a senior energy trader at CIBC Private Wealth Group, threw cold water on Wednesday's sudden market rally, pointing out that  "A relief rally in broader markets is dragging crude higher, but the pause on other countries is far less impactful when tariffs on China are up as they are a major driver of crude demand growth,"

Meanwhile, the next Trump-inspired initiative almost sure to affect oil trading in the near future – in the off-chance he doesn't make headlines before then – is an unprecedented Saturday meeting between the U.S. and Iran to discuss the Islamic Republic's nuclear program; if successful, this could result in a significant easing of geopolitical tension but also see more Iranian crude entering the global market.