Trump Tariff Tumult Causes More Oil Price Losses, With No End In Sight

Bank of America worries of oil demand plummeting by half this year: File Image/Pixabay

The tumult caused by U.S. president Donald Trump's attempt to reorganize international trade via tariffs continued to wreak havoc on crude prices Monday, with the commodity incurring a 2 percent-plus  drop.

Ole Hansen, head of commodity strategy at Saxo Bank, said, "Commodities are on the receiving end of these tariff-related worries about growth and demand; as volatility continues to rise, we are going through a major deleveraging phase.

"Positions in commodities are being reduced across the board."

The latest losses were likely due to China on Friday saying it would impose counter-tariffs of 34 percent on U.S. goods (a move that will likely hurt China more than the U.S. considering the relatively small amount of U.S. good entering that country), while an estimated 70 other countries expressed eagerness to enter into negotiations with Washington.

One fear of a potential U.S./China trade war is its potential impact on demand for raw materials.

West Texas Intermediate on Monday settled down $1.29, or 2.08 percent, to $60.70 per barrel, while Brent settled down $1.37, or 2.09 percent, to $64.21.

While Trump earlier warned that his tariff strategy  to level the trading playing field would cause short-term hardship, he stated on Monday: "Oil prices are down, interest rates are down (the slow moving Fed should cut rates!), food prices are down, there is NO INFLATION, and the long time abused USA is bringing in Billions of Dollars a week from the abusing countries on Tariffs that are already in place."

Trump could not be fully blamed for panicking investors: the Organization of the Petroleum Exporting Countries' (OPEC) decision to speed up output hikes in May contributed to Monday's  selloffs.

For its part, Bank of America said a trade war could cut oil demand in half this year, leading to an "eye-watering" surplus of 1.25 million barrels per day (bpd).

Also, Jeff Currie, chief strategy officer for energy at Carlyle, reminded audiences that oil currently at $60 per barrel is below the break-even price for some U.S. shale firms: "If you go down below $55, you're now below the economics of the Permian."

Gabriele Sorbara, managing director at Siebert Williams Shank & Co., suggested that companies might continue to drill wells, but at a slower pace, and not bring them online until prices recover: "I think they'll hold onto stuff as long as they can because they don't want to let go of a [drilling] rig or [fracking] crew if they're really efficient."

Meanwhile, Russia proved not to be immune to the global rout: its flagship Urals grade further dropped on Monday after hovering at around $52 per barrel at the Baltic Sea port of Primorsk on Friday.

This prompted Kremlin spokesman Dmitry Peskov to state, "We are monitoring closely the situation, which is currently extremely turbulent, tense and emotionally charged."