Trump’s back-and-forth regarding tariffs and the published inflation data in the U.S. have stabilized the macro mood and somewhat influenced the volatility of all markets, including commodity markets. Indeed, the world around us is currently very uncertain. Every day we can expect something new. It is no wonder that in such conditions key indicators fall one day and recover the next. Every day, analysts assess what has happened and what will happen. From ecstasy to despair and back in one or two days, then starting all over again. As it currently seems, U.S.-China trade tensions will be in the spotlight this week, all ahead of the ECB’s decision on a potential change in interest rates on Thursday and in the context of the upcoming Easter holidays (which means that exchanges and markets will operate shorter than usual this week).
Trump believes that the U.S. can outlast China in this trade war and that it is only a matter of time before China falters in some way. However, tensions between the U.S. and China will last a long time, as China views all of this as a struggle for its global power. However, how many American products can pass through Hong Kong to avoid Chinese tariffs?
The U.S. plan to devalue debt through dollar devaluation is working, and it simultaneously achieves another goal, which is to favor U.S. exports. The dollar is at a level of about 1.14 against the euro, and the technical target is now 1.20, which is an unambiguous factor for decline. But there is a problem and a contraindication: distrust in U.S. Treasuries is rising, yields are increasing, and the futures price of gold is reaching new records, currently above $3200 per ounce.
The VIX, the fear index, has risen by more than 20 percent, while gas and oil have significantly lost value. Fears are growing that China, as the largest holder of U.S. Treasuries, could lighten part of its portfolio due to escalating trade tensions with the U.S. The exit of investors from U.S. assets affects not only government bonds but also the dollar, which has been considered the ultimate safe haven for decades. The U.S. has a historic opportunity to help restore monetary integrity by issuing gold-backed and other decentralized treasury instruments. But time is running out.
Oil Prices Fall, Gas Prices Stable
On global markets, oil prices have fallen for the second consecutive week, after plummeting more than 10 percent the week before. The price of a barrel on the London market fell by 1.3 percent last week, while on the U.S. market, a barrel decreased by 0.8 percent. Most importantly, the futures price is at a level slightly above $60/bbl. The main driver in the market is fear of a tariff war between the U.S. and China, as well as the announcement of OPEC’s increase in production.
The drop in oil prices was halted after Trump decided mid-week to postpone the implementation of additional reciprocal tariffs on all countries except China for 90 days. Analysts estimate that the tariff war between the two largest economies in the world will reduce the volume of global trade and slow economic growth and demand for oil. China is the world’s largest oil importer. By the end of 2024, it purchased 553.4 million tons of oil, 1.9 percent less than in 2023. Of that, it bought 108.5 million tons from Russia, 78.64 million tons from Saudi Arabia, and 11 million tons from the U.S. Furthermore, despite expectations of reduced demand, leading oil producers plan to bring significantly more barrels to the market. Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria, and Oman will increase production by 411,000 barrels per day in May.
Just because oil prices have fallen 20 percent, to a 4-year low since Trump took office, does not mean that the price of oil is favorable. However, it does mean that it is cheap. But what is cheap could become cheaper. Right now, the market has factored in the economic slowdown and OPEC+ production higher than expected into the futures price. But oil traders have not yet factored in a potential recession in the U.S., let alone in China, nor the full price war instigated by Saudi Arabia, nor the combination of the aforementioned factors and risks. If these risks materialize, the price of oil could easily fall below $50/bbl, and perhaps even below $40/bbl. If the price of oil falls to those levels, can it remain at those levels for an extended period, measured in years rather than months? The answer is almost certainly “no” because supply and demand will quickly re-establish balance at those levels. And this opens opportunities for various investors, who are willing to even take significant but temporary losses relative to market prices, to enter into forward positions for oil delivery several years into the future. Over the last year or two, the outlook on oil has been bearish, but the risk-reward relationship is not the same when the price of a barrel is $60 and when it was close to $100 at the end of 2023.
