US President Donald Trump followed through on his threats to launch a trade war with the US' neighbors and China on Tuesday, throwing energy markets into a frenzy.
Trump imposed 25% tariffs on most imported goods from Canada and Mexico, with Canadian energy getting a 10% levy, while imports from China were slapped with a second 10% tariff. Canada and China immediately responded with reciprocal tariffs on targeted US goods, while Mexico promised to follow suit soon.
The US president is expected to target imports from the EU, which would widen the trade war that is already raising the risk of inflation, causing bond and equity markets to slump and US consumer confidence to plummet.
Energy markets reacted strongly to Tuesday's tariff actions. US natural gas prices soared to a two-year high, while global oil price benchmark Brent closed at its lowest level since September as traders fretted over the growing prospect of recession and a potential short-term supply surplus following the Opec-plus coalition's decision on Monday to start unwinding their first tranche of production cuts from April as planned.
In London, the May contract for Brent fell by 58¢ to close at $71.04 per barrel, while in New York, the April contract for US benchmark West Texas Intermediate (WTI) shed 11¢ to settle at $68.26/bbl.
Brent dipped below $70/bbl at one point in Tuesday's session but recovered after news broke that the natural resources and investment deal between the US and Ukraine may be back on after its dramatic collapse in the Oval Office last Friday.
Dated Brent — the price for oil with a delivery date — held a roughly $1.20 premium to the paper market, a sign that the physical oil market was energized by the short-term uncertainty.