Yesterday, the United States and Mexico settled on new concessions that will make changes to the current North American Free Trade Agreement (NAFTA). The hope is to improve upon the U.S. $69-billion trade deficit with Mexico.
On Saturday OPEC and non-OPEC producers agreed to raise production by 1 million barrels per day (bpd). Perhaps more important than that, they agreed to return to 100% compliance of the previously agreed upon production cuts of 1.8 million bpd. Production was lagging from struggling countries, i.e., Venezuela, Angola and Libya which effectively equated to a production cut of 2.8 million bpd. Most notably, Reuters reports that Venezuela has been pumping more than 500,000 bpd less than its target. So, let’s clear up the math. OPEC and its non-OPEC partners are effectively saying they are going to be ramping up production by 2 million bpd, 1 million to make up for lost compliance and 1 million in additional capacity. How are the markets reacting? The Brent-WTI spread is getting slammed.
Oil prices are lower this morning sparked by increasing trade war fears between China and the U.S. after President Trump sought to impose another $200 billion worth of tariffs yesterday.
On May 22nd WTI Crude nearly reached $73 / barrel and since then prices have dipped almost 10%.
The world’s two largest economies have decided to scale back the threats of a trade war by agreeing not to impose new tariffs. Chinese officials met with members of the Trump administration in Washington this weekend with plans for China to increase its purchases of American produced goods in order to reduce the multi-billion dollar trade imbalance between the two superpowers. The trade imbalance reached $375 billion in 2017.