Trade Policy Uncertainty Intensifies, Putting Pressure on Commodities and Risk Assets
The oil market faced downward pressure as ICE settled over 0.8% lower yesterday, with further declines in early morning trading today. Rising supply and escalating uncertainty over tariffs are impacting oil market sentiment. The Trump administration is reportedly considering tariff relief on imports from Canada and Mexico, but investors are cautious, leading to reduced speculative positioning in WTI and Brent.
In terms of sanctions, Chevron has been given until 3 April to wind down operations in Venezuela, putting 200k b/d of oil supply at risk. This comes at a time when US refiners are seeking alternative heavy grades of crude oil due to the sanctions and tariffs facing other suppliers like Canada and Mexico.
The American Petroleum Institute reported a 1.5m barrel decline in US crude oil inventories last week, along with changes in product inventories. Despite these numbers, market focus remains on tariff developments.
European gas prices saw a significant sell-off, with TTF settling nearly 3.9% lower. However, we believe this weakness is excessive given the tight storage situation and the need for European prices to stay elevated compared to Asia for LNG imports.
China Retaliates Against US Agriculture with Tariffs
China announced additional tariffs on US agricultural products in response to US tariff increases. The targeted commodities include soybeans, pork, beef, and more, with tariffs ranging from 10-15%. These measures could push China towards South American supply, especially for soybeans.
Data from the USDA shows limited outstanding sales of soybeans, corn, and wheat to China, indicating the potential impact of these tariffs on US agricultural exports to China.
Analysis: The escalating trade tensions and tariffs are causing volatility in commodity markets, impacting both oil and agricultural sectors. Investors should monitor developments closely as they can affect supply chains, prices, and investment opportunities. It is important to diversify portfolios and stay informed to navigate the changing market conditions effectively.