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What’s happening: Crude oil prices rose sharply on Tuesday, driven by a temporary reduction in US-China trade tariffs.
What happened: Lower-than-expected inflation data from the US also provided a boost to oil prices.
The gains were limited by news of the OPEC+ (Organization of the Petroleum Exporting Countries and its allies) considering increasing oil exports.
Why it matters: On Monday, the US and China announced plans to temporarily lower tariffs on each other for 90 days. The US agreed to slash tariffs to 30% from 145% on Chinese imports, while Beijing said it would lower duties to 10% from 125% on goods imported from the US.
There is still uncertainty around what would happen once this 90-day truce expires and what tariff rates would be levied by the world’s two largest economies.
US President Donald Trump has begun his tour in Saudi Arabia. The Kingdom has been looking to increase oil output to make up for members that were unable to meet production targets.
The OPEC’s total output has surged more than projected since April and May production is expected to increase by 411,000 bpd (barrels per day).
On Tuesday, the US Labor Department reported that the Consumer Price Index rose 2.3% year-over-year in April, easing from 2.4% in March. This being the smallest rise in the CPI in four years resulted in big firms like JPMorgan Chase and Barclays lowering their recession projections for the US.
The slowdown in inflation also provided some relief to the US Federal Reserve, which has not cut interest rates since December amid concerns over higher tariffs resulting in sticky inflation.
Brent crude futures gained $1.67, or 2.57%, to close at $66.63 a barrel, while WTI crude rose by $1.72, or 2.78%, to settle at $63.67 a barrel on Tuesday.
Although this added to the gains of around 4% in the previous session, crude prices are still trading around 10% below levels in early April, with fears of the high tariffs imposed by the US hurting global economic growth and lowering the demand for fuel.
In other energy trading, gasoline settled at $2.1660 a gallon, while heating oil closed at $2.1713 a gallon and natural gas at $3.978 per million British thermal units.
What to watch: Data on crude oil inventories from the US EIA (Energy Information Administration) will be released today (1830 UAE Time). Crude oil inventories in the US, which declined by 2.032 million barrels in the week ended May 2, are expected to contract by 2.4 million barrels in the latest week.
Analysts expect US gasoline stockpiles to decline by 0.9 million barrels in the recent week, following a rise of 0.188 million barrels in the previous week, while distillate stockpiles are expected to increase by 0.5 million barrels.
Context: Equity markets in Europe closed mostly higher on Tuesday, as investors assessed the latest economic and earnings data.
Details: Although the US and China have agreed to temporarily lower reciprocal tariffs, investors remain cautious about the global trade outlook.
Data released on Tuesday showed the ZEW Indicator of Economic Sentiment for the Eurozone jumped by 30.1 points to a reading of 11.6 in May. The figure also topped market estimates of -3.5.
Germany’s ZEW Indicator of Economic Sentiment climbed by 39.2 points to a reading of 25.2 in May, recovering from around a two-year low of -14.0 in the previous month.
Bayer’s stock gained around 3% after the pharmaceuticals giant reported better-than-expected quarterly results. Shares of Vestas jumped more than 9% after the company reported 29% year-over-year revenue growth in the first quarter.
The STOXX Europe 600 Index rose 0.12% to close at 545.17 on Tuesday. While London’s FTSE 100 slipped 0.02% to settle at 8,602.92, while Germany’s DAX 40 and France’s CAC 40 gained 0.31% and 0.30%, respectively.
What to watch: With no major economic data scheduled for release today, investors await the release of reports on employment change, industrial production and GDP growth rate on Thursday. Analysts expect Eurozone’s employment to rise by 0.8% year-over-year in the first quarter, up from 0.7% in the previous quarter.
The bloc’s industrial production, which rose 1.1% in February, is expected to grow by 1.8% in March. The Eurozone economy is expected to expand by 1.2% year-over-year in the first quarter, in-line with the previous quarter’s pace.
Other Markets: Asian indices traded mixed this morning, with Japan’s Nikkei 225 and China’s Shanghai Composite Index down by 0.56% and 0.15%, respectively, and Hong Kong’s Hang Seng Index up by 1.33%.
Russia and Ukraine are set to have their first face-to-face talks since 2022 in Istanbul this week. The news sent the safe-haven US dollar index lower in forex trading this morning.
Australia’s wage price index rose by 3.4% year-over-year in the fourth quarter, following a 3.2% gain in the year-ago period. The latest reading also came in above market estimates of 3.2%, lending support to the AUD/USD forex pair.
Japan’s producer prices rose by 4.0% year-over-year in April, decelerating from 4.2% in the previous month. The latest reading coming in-line with market expectations sent the JPY/USD pair higher in forex trading this morning.
South Korea’s unemployment rate eased to 2.7% in April, from 2.9% in the previous month, lending support to the KRW/USD forex pair.
New Zealand’s electronic card transactions came in unchanged at NZ$6.46 billion in April, sending the NZD/USD pair slightly higher in forex trading this morning.
UK’s 10-year treasury Gilt auction (1300 UAE Time), Germany’s 30-year Bund auction (1330 UAE Time), US MBA mortgage applications (1500 UAE Time) and 17-week bill auction (1930 UAE Time), India’s M3 money supply (1530 UAE Time), Canada’s building permits (1630 UAE Time), new motor vehicle sales (1630 UAE Time) and 2-year bond auction (2000 UAE Time), as well as Argentina’s inflation rate (2300 UAE Time).
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