By Barani Krishnan
Investing.com - The sheer domination of trade wars on the global markets narrative was proven again Thursday when oil prices reversed course from the battering they had taken in recent days to settle up 2% on a report that U.S. tariffs on Mexico might be delayed.
The U.S. may be considering delaying President Donald Trump’s threatened tariffs on Mexico as talks continue over stemming the flow of undocumented migrants and illegal drugs from Central America, Bloomberg reported. The report fired a late stock market rally and led to a jump of about $1 per barrel in key crude oil benchmarks.
U.S. West Texas Intermediate settled up 91 cents, or 1.7%, at $52.51 per barrel, after spending most of the day in negative territory. In post-settlement trade, WTI was up more than 2%.
WTI sunk to $50.62 on Wednesday, its lowest level since Jan. 14, after the U.S. Energy Information Administration reported a crude stockpile build of nearly 7 million barrels, versus expectations for a draw of 850,000.
Brent, the U.K.-traded global benchmark for oil, rose $1.04, or also 1.7%, to settle $61.67 a barrel. Like WTI, it continued to rise after settlement, trading more than 2% higher.
Brent hit a five-month low of $59.45 on Wednesday, breaking below the key $60 per barrel support, after the crude stockpile build reported by the IEA.
Just in April, WTI reached 2019 highs of $66.60 and Brent $75.60 from the combination of OPEC production cuts and U.S. sanctions on Iranian and Venezuelan crude exports. Since then, the escalating U.S.-China trade row and surprise tariffs proposed by the Trump administration on Mexico has dominated the narrative in oil, sparking global recession worries.
Trump had not greenlighted the plan to halt tariffs on Mexico, Bloomberg said. But Mexican officials were pushing for more time to negotiate over concerns the two sides won’t be able to reach agreement quickly on the president's demands.
The report added that chances are the first 5% tariffs due on Mexican imports from Monday were likely to go through. But if Mexico follows through on promises to crack down on migration, the duties could be short-lived, the report quoted a U.S. official as saying.
Talks between U.S. and Mexican officials, which began Wednesday and resumed earlier Thursday, were poised to continue at 5:30 PM ET (21:30 GMT) at the State Department, CNBC reported, citing a key Mexican government negotiator.
Oil markets have had a volatile two months, with initial year-to-date gains of more than 40% dwindling to about 15% as global economic concerns intensified amid a worsening outlook for crude demand.
Aside from last week's unexpected crude stockpile build, the EIA also reported that gasoline inventories increased by 3.21 million barrels last week, compared to expectations for a gain of 0.63 million barrels. Distillate stockpiles rose by 4.57 million barrels, compared to forecasts for a build of 0.50 million.
Over and above that, U.S. crude production hit new record highs of 12.4 million barrels per day. Total petroleum stockpiles grew by about 22 million barrels last week, the biggest jump going back to 1990, marking a three-decade high.
That all these builds were occurring with just about two weeks to the official start of summer -- a period when driving and demand for fuels are at their peak in the U.S. -- has roiled the market.