Oil prices have a tough time just holding a gain. Recent pronouncements from the Kingdom of Saudi Arabia concerning its oil production strategy, as well as the continued tariff negotiations spearheaded by former President Donald Trump, are primarily responsible for this downward pressure. The economy seems poised to start reacting to increases in interest rates from the Federal Reserve (FED). Market analysts are looking very closely at these emerging developments.
On May 1, 2023, Saudi Arabia declared an accelerated oil output schedule, pledging to increase production by 411,000 barrels per day (bpd) starting in June. This announcement comes during a time of recently rising oil prices. West Texas Intermediate crude, the U.S. benchmark oil price, dropped 1.8% or $1.10 per barrel, to settle at $57.23. It has recently rebounded some, with prices today at $58.36, up $1.13 per barrel as of writing.
Market participants are understandably focused, as the FED begins its meeting today. Further, they’re about to assess the next steps in what has been an extremely loose monetary policy. On virtually all relevant economic indicators, we are killing it. The S&P PMI Services survey and the ISM Services PMI are showing bullish growth signals. The Prices Paid index rose to 65.1, a sign of possible inflationary pressures.
Given these economic realities, market expectations favor at least two rate cuts beginning in June. The current federal deficit of 6.2% of GDP adds to worries about fiscal sustainability with all these changes.
Now, here comes the twist This is where Trump’s recent announcement has deepened this complexity. He has captured the world’s attention by imposing a ridiculous 100% tariff on the film industry. He said, “Tariffs are strategically designed to lure firms of your ilk to invest here, in the United States, directly. Employ your people here, construct your plants here, manufacture your goods here.” This new directive aims to ensure more of that investment flows back to the US. If done the right way, it stands to greatly benefit countless industries.
Bessent, an economic analyst, stressed that these tariffs are particularly crucial during this toxic climate. “Never been a better time to invest in America,” he shouted. He thinks the current economic situation could motivate firms to answer Trump’s rallying cry and increase their domestic investments.
The effects of Saudi Arabia’s recent oil production increase and Trump’s tariff announcements still are reverberating through financial markets. Investors are assessing how these developments will affect overall economic health and inflation rates as they anticipate the FED’s decisions.