Oil as an indicator of what may happen

Typically, a drop in oil prices is good news for households, as it eventually leads to cuts in fuel prices. However, sometimes a drop in crude oil prices can be an indicator of poor economic prospects and, therefore, would no longer be such positive news. This is exactly what has been happening since Donald Trump announced his trade war around the world, and especially in China, on April 2, the so-called "liberation day."

Since then, the price of crude oil has fallen from $75 to $65, a 16% drop, a level not seen since the pandemic. The causes are diverse, but the triggering factor is that investors believe the tariff war will have a negative impact on international trade and, therefore, there will be less demand for oil. This coincides with the time when OPEC+ countries had previously decided to increase production. Furthermore, Russia desperately needs to raise foreign currency to fund the war in Ukraine.

This drop can, in turn, have very negative effects on the sector. fracking in the United States, since below $65 it is no longer worth drilling the barrel, so the famous "drill, baby, drill"Donald Trump's would not be worth it. This explains the fall in the stock market of companies dedicated to fracking, who had euphorically greeted Trump's rise to power. The effects of the oil tariff war are another of those unexpected consequences that are turning into a boomerang for Donald Trump.

However, what is more worrying is that the drop in oil prices indicates that the global economy may be in reverse. First of all, in the United States itself, where the Trump administration is pressuring Federal Reserve Chairman Jerome Powell to cut interest rates. In a few days, we will know how much US GDP grew (or fell) in the first quarter, data that will be key to gauging the impact of the Trump administration on the economy. If the US economy suffers, it would inevitably have repercussions on the other side of the Atlantic, where there are already very weakened economies, such as Germany and France.

The bottom line is that, given the evolution of oil prices and stock indices, it's clear that investors believe the data is looking bad and that they need to prepare for crisis scenarios. Therefore, we will have to pay close attention to market developments in the coming days and see if Trump takes a different tack—such as suspending tariffs on everyone except China—or if he maintains the current scenario of a collision with Beijing. The first decision he must make is what to do with electronic devices manufactured in the Asian giant, which have been temporarily excluded from the tariffs.