Oil Prices Tick Down as US Boosts Output and Tariff Reprieve Kicks In

Oil prices have been on a rollercoaster ride in recent months, with a planned increase in US oil output and a tariff reprieve between the US and China adding to the market's volatility. As of late 2024, oil prices have been ticking down, with Brent crude futures trading at around $90 per barrel. This article explores the factors contributing to the recent price movements and their potential implications for the global oil trade dynamics and oil prices.



US Boosts Oil Output

The US has been ramping up its oil production, driven by the shale oil boom and the lifting of the crude oil export ban in 2015. This increase in US oil output has led to a decoupling of the terms of trade for commodity products and oil prices in the US (Chart B, panel b). Historically, these two variables were closely correlated, but after 2015, they started to gradually decouple, and the correlation switched sign when the US became a net exporter. This change in the US terms of trade may have altered the link between oil prices and the US dollar, potentially strengthening the inflationary impact of oil shocks in net oil importers such as the euro area.

Tariff Reprieve

The tariff reprieve, which allows US companies to import certain types of oil from China without paying tariffs, could potentially influence global oil trade dynamics. The increased US imports from China could lead to a shift in global oil flows, with more oil being directed towards the US market. This could potentially reduce the amount of oil available for other countries, leading to increased competition for supplies and potentially driving up prices. However, if the increased US imports from China lead to a reduction in OPEC's market share, this could potentially lead to a decrease in OPEC's influence over global oil prices.

Potential Impacts on Oil Prices

The shift in global oil flows and the potential reduction in OPEC's market share could potentially impact oil prices. If the increased US imports from China lead to a shift in global oil flows and increased competition for supplies, this could potentially drive up oil prices. However, if the increased US imports from China lead to a reduction in OPEC's market share, this could potentially lead to a decrease in OPEC's ability to influence global oil prices.

In conclusion, the planned increase in US oil output and the tariff reprieve between the US and China have contributed to the recent volatility in oil prices. The decoupling of the US terms of trade and the potential shift in global oil flows could have significant implications for the global oil trade dynamics and oil prices. As the market continues to evolve, investors and industry players should closely monitor these developments and adapt their strategies accordingly.