Crude oil futures reached near-record lows on Wednesday, caused by various economic factors that further destabilized the already volatile commodities market. This drop can be largely attributed to uncertainties surrounding the hefty tariffs unlaid by the U.S government on Mexican and Canadian goods as well as Chinese imports. West Texas Intermediate (WTI) crude futures, the U.S. oil benchmark, took a massive hit, dropping by up to 4% to trade at $65.22, a low not seen since the end of 2021. Major U.S. oil enterprises such as ConocoPhillips (COP) and ExxonMobil (XOM) reflected this trend, with their share prices also spiraling downward.
The introduction of tariffs increase market uncertainty. Initial threats of tariffs in January caused oil prices to surge as market players feared that they would lead to limited supply. This time, participants worry about the potential damaging effects the taxes, coupled with possible countermeasures, could have on the global economy.
The new tariffs, while have minimal impact on U.S. inflation and economic growth rates in the short term, could likely damage the Canadian and Mexican economies more significantly. This could lead to these crucial oil markets entering recessionary periods.
Furthermore, the commodities market also absorbed a blow from the OPEC+ decision on Monday to increase oil production from April. This reverses the production cuts that the consortium of major oil producers had pledged to in November 2023.
Ahead of his presidency, Trump had endorsed cheaper gas and oil prices. He had vouched America would "drill, baby, drill" with the intent to reduce transportation expenses which would, in turn, cool off inflation. Under his administration, WTI has shrunk by approximately 15%, and fuel costs have moderately dropped over the last month.
Higher oil prices directly impact inflation by boosting the gas expenditure for motorists and escalating production and transportation expenses for businesses. Studies suggest that oil prices significantly influence inflation outlooks, which can contribute markedly to actual price surges.