Oil Prices Dip Due to Trade Tensions Reaching August 1 Threshold
In a significant escalation of trade tensions, US President Donald Trump has warned Russia to halt its war with Ukraine within 10-12 days, threatening to impose 100% secondary tariffs on Russia's trading partners. This move comes as part of a more protectionist US trade policy, aimed at rebalancing trade deficits and boosting domestic manufacturing [1][2][3][4].
The US has also targeted countries like China, Mexico, and the EU with elevated duties, including a new 35% tariff on Canadian imports. The ongoing U.S.-China trade conflict, characterized by high reciprocal tariffs, appears unresolved and is a focal point of the current tensions [2].
These aggressive US tariffs have created economic uncertainty, potentially suppressing global crude oil demand through slower growth and disrupted trade flows. Crude oil decreased on Thursday due to concerns of slowing energy demand and the impending trade deal deadline with the US [5].
Meanwhile, the OPEC+ cartel is expected to raise crude oil production by 548,000 barrels per day in September, as select member-nations meet in August [6]. However, the increased production may not be enough to offset the potential demand decrease due to the trade tensions.
Elsewhere, the Houthi rebels in Yemen have attacked two bulk merchant vessels in the Red Sea, causing them to sink [7]. Ships are currently circumventing the Red Sea due to these attacks, leading to increased transportation costs and insurance premiums.
India's state refiners have paused buying Russian crude oil this week and are seeking supplies from the Middle East and West Africa, as Trump levied a "penalty" on India for buying Russian oil, on top of an already-slammed 25% tariff [8]. China and India are the primary destinations for Russian oil exports.
The EU implemented an import ban on all refined products made from Russian crude oil originating from third countries on July 18 [9]. The truce between Israel and Iran remains unchanged, while the US Federal Reserve concluded its meeting without changing interest rates [10].
Analysts predict that the situation will become clearer by mid-August once a final tariff framework emerges. Gasoline stocks fell by 2.7 million barrels, suggesting healthy demand, but the ongoing trade tensions and geopolitical flare-ups may continue to impact crude oil prices [11].
References:
- Wall Street Journal
- CNBC
- Bloomberg
- Reuters
- Reuters
- Reuters
- Reuters
- Bloomberg
- Reuters
- Reuters
- Reuters
In the face of the ongoing U.S.-China trade conflict and escalating protectionist trade policies, the finance sector is closely monitoring the impact on the energy industry. For instance, the 35% tariff on Canadian imports and the added "penalty" on India for buying Russian oil may disrupt the flow of crude oil business between these nations and their respective trading partners.
