It looks set to be a disappointing start to the week for the shares of Australian energy producers such as Beach Energy Ltd (ASX: BPT), Oil Search Limited (ASX: OSH), Origin Energy Ltd (ASX: ORG), Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX: WPL) after oil prices crashed lower on Friday night.
According to CNBC, on Friday the WTI crude oil price fell a further 5.5% to US$53.50 a barrel and the Brent crude oil price dropped 3.6% to US$64.49 a barrel. This left oil prices trading close to a three-month low.
Why did the oil price crash lower?
Oil prices sank lower after U.S. President Donald Trump fuelled global trade tensions by threatening tariffs on Mexico unless it stopped people from illegally crossing into the United States.
President Trump's plan would impose a 5% tariff on Mexican imports starting on June 10 and then increase monthly, up to 25% on Oct. 1.
There are concerns that this could hit the two countries' lucrative cross-border energy trade.
PVM analysts told CNBC: "U.S. refiners import roughly 680,000 barrels per day of Mexican crude. The 5% tariff adds an extra $2 million to the cost of their daily purchases."
This latest threat adds to concerns about global economic growth, which experts believe is already at risk due to the U.S.-China trade war.
In addition to this, last week oil prices tumbled lower after data revealed a smaller than expected decline in U.S. crude inventories.
The U.S. Energy Information Administration (EIA) said crude stockpiles fell nearly 300,000 barrels, which was significantly less than the 900,000-barrel decline analysts had forecast. This left crude stockpiles at 476.5 million barrels, which was around 5% higher than the five-year average for this time of year.
What now?
If the U.S. and China can make a trade deal then there's every chance that oil prices will rebound strongly. But until the two countries can settle their differences, I suspect that oil prices will remain under pressure and highly volatile.
