On Monday during the Asian session, the US Oil prices dropped over 2% after U.S. President Donald Trump said he would distinctly increase tariffs on Chinese goods this week.
In response, the U.S. West Texas Intermediate (WTI) crude futures turned bearish to trade at $60.44 per barrel, down $1.50 per barrel, or 2.4%, from their last settlement.
Impact of Tariff Hike on US Oil
In order to explain the impact of the proposed US tariffs on China, which are expected to touch approximately $200 bln worth of imports, it would be prudent to consider not only the possible impact these may have on the economies of the two countries, but also on world trade and subsequently the price of oil.
Why oil? Well, given that the goods are imported to the US, it implies they have to be moved somehow. Given the geographic distance between the nations, this can only be executed by vessels or aeroplanes, which use petroleum or petroleum commodities such as fuel.
China is a manufacturing nation and one of the biggest buyers of crude oil. The increase in trade tariff could prompt a decline in China’s exports and eventually, it’s manufacturing needs. Consequently, the Chinese demand for crude oil may also drop. With that thought, investors shorted the crude oil futures, and selling pressure weighed on crude oil prices.
Crude oil has violated two support levels, including 62.27 and 61.40 and both of these are going to work as a resistance. Recently, crude oil has formed a bullish engulfing pattern, signalling a buying sentiment of traders.
Right now, US Oil has gained some support around $60.30. The 50 periods EMA stays around $62.60 and may keep crude oil prices lower.
Key Trading Level: 61.94
Crude Oil - Trade Idea
Traders, It will be nice to stay bullish above 60.40 and bearish below 62. All the best.