EU and US could reach trade deal this weekend - Reuters
Investing.com - The crude market has not been spared the wrath of the post-"Liberation Day" selloff, and BCA Research thinks the Brent contract has likely fallen to a lower trading range.
At 06:10 ET (10:10 GMT), the Brent contract rose 1% to $65.39 a barrel, but has fallen 13% year-to-date, and was over 7% lower over the last month.
Oil’s relatively pronounced year-to-date selloff is justified, according to analysts at BCA Research, in a note dated April 14.
“It is facing a double whammy from the tariff-induced hit to economic activity and the OPEC+ plan to raise crude output,” BCA said. “The latter ultimately suggests that, unlike in the past, the coalition will not rush to rescue oil markets by cutting production to shield prices from macroeconomic headwinds.”
China – the key driver of global commodity demand growth – faces a colossal 145% U.S. tariff rate. And even though President Trump delayed the reciprocal tariffs on other countries, the rest of the world still faces the new minimum 10% rate.
“These trade hurdles will undoubtedly weigh on economic activity and demand for cyclically sensitive commodities such as oil and industrial metals,” BCA added.
“Our base case for oil is that crude’s price is likely to remain depressed following its latest shellacking.”
“The implication is that Brent will trade in the $50-$65 per barrel range in this scenario, in line with Trump’s likely preference.”
The question now is whether OPEC+’s April 3rd production hike announcement is the outcome of a failed meeting in which Saudi Arabia was not able to obtain guarantees from non-complying producers – principally Kazakhstan and Iraq – that they will rein in their output going forward.
If that is the case, then the price slide could eventually compel OPEC+ cheaters to improve their compliance and ultimately abide by tighter production quotas.
In this scenario, 2020 oil market dynamics offer a good roadmap for what to expect ahead. Namely, prices will continue to weaken until a production cut announcement activates the OPEC put.