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Oil prices experienced moderate declines on Thursday as traders grappled with the potential impact of U.S. President Donald Trump’s latest tariff threats on the global economy.
Oil Price Movement
Brent crude futures dropped 23 cents, or 0.3%, to $69.96 a barrel, while U.S. West Texas Intermediate crude lost 32 cents, or 0.5%, to $68.06 a barrel by 0904 GMT. These declines came after a volatile period as markets continued to absorb the implications of Trump’s tariff announcements.
Impact of U.S. Tariffs
Trump’s trade policy actions have significantly influenced global sentiment. On Wednesday, the U.S. president threatened to impose a 50% tariff on Brazilian exports after a public dispute with Brazil’s president, Luiz Inacio Lula da Silva. This was part of a broader strategy that also included plans for tariffs on copper, semiconductors, and pharmaceuticals. Additionally, Trump’s administration sent tariff letters to countries including the Philippines and Iraq, adding to the already growing list of U.S. trading partners facing potential tariffs.
Despite the heightened rhetoric, market reactions have been subdued. According to Harry Tchilinguirian, group head of research at Onyx Capital Group, “People are largely in wait-and-see mode, given the erratic nature of policy making and the flexibility the administration is showing around tariffs.”
Economic Uncertainty and Inflation Concerns
Trump’s tariff policy continues to stir concerns over inflationary pressures, with the Federal Reserve remaining cautious about lowering interest rates. Minutes from the June 17-18 Federal Reserve meeting revealed that only a few officials were in favor of rate cuts in the immediate future. Higher interest rates typically reduce demand for oil as borrowing becomes more expensive, which in turn weighs on oil prices.
Support for Oil Prices from Dollar Weakness
Despite the tariff concerns, oil prices found some support from a weaker U.S. dollar in Thursday’s Asian trading session. A softer dollar makes oil cheaper for holders of other currencies, providing some price relief.
Supply and Demand Dynamics
The U.S. Energy Information Administration (EIA) reported an increase in U.S. crude stocks, while gasoline and distillate inventories fell. Gasoline demand surged by 6% to 9.2 million barrels per day last week, indicating a healthy consumption rate. Moreover, global daily flights, an indicator of travel demand, hit a record high, and port and freight activities suggest ongoing expansion in trade.
In its report, JP Morgan also noted that global oil demand growth for the year is averaging 0.97 million barrels per day, aligning with the bank’s forecast of 1 million barrels per day.
OPEC+ Production Increases and Potential Supply Bottlenecks
While OPEC+ has agreed to increase production by 548,000 barrels per day in August, there are concerns over whether this increase will be fully realized. Some OPEC+ members are already exceeding their quotas, while others, like Russia, face challenges meeting targets due to damaged oil infrastructure.
OPEC+ oil producers are expected to approve another significant output increase for September as part of the group’s efforts to unwind voluntary production cuts. However, some analysts, including Tony Sycamore from IG, remain doubtful about the ability of these quotas to translate into actual production increases.
Conclusion
The market is currently facing a balancing act between tariff-induced risks and strong demand signals. While Trump’s tariff threats and the uncertainty surrounding U.S. trade policy have dampened sentiment, supportive factors like a weaker dollar and robust demand in the global economy are providing some cushion for oil prices. The situation remains fluid, and traders will closely monitor the evolving geopolitical landscape and economic indicators in the coming weeks.
