Crude oil futures dropped to their lowest levels in years on Wednesday, driven by concerns over U.S. tariffs and a surprise production increase from OPEC+.
West Texas Intermediate (WTI) crude, the benchmark for U.S. oil, fell by as much as 4%, reaching $65.22—its lowest price since late 2021. The decline in oil prices also led to a drop in shares of U.S. oil companies like ConocoPhillips (COP) and ExxonMobil (XOM).
The recent market volatility follows President Trump’s announcement on Tuesday of a 25% tariff on goods from Canada and Mexico. He also raised tariffs on Chinese imports to 20%.
When Trump first threatened tariffs on Canadian and Mexican goods in January, oil prices actually rose due to worries that these tariffs could limit supply. However, this time, the market is more focused on how the tariffs and potential retaliatory actions might harm the global economy.
Experts expect the tariffs will slightly increase U.S. inflation and slow economic growth in the short term. They could also push the economies of Canada and Mexico into recession, which would deeply affect their oil markets.
Oil prices were also impacted by OPEC+’s decision on Monday to raise production starting in April. This increase will reverse some of the production cuts made by the group of major oil producers in November 2023.
Lower oil prices were a key focus for Trump during his presidential campaign. He promised to boost U.S. oil production to reduce transportation costs and curb inflation. Since his inauguration, oil prices have fallen around 15%, and fuel prices have dropped slightly in the past month.
Higher oil prices contribute to inflation by increasing the cost of gasoline and raising production and transportation costs for businesses. Studies show that oil prices also influence inflation expectations, which can drive actual price increases.
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