Crude oil prices slumped by 3% earlier this year as traders digested the barrage of tariffs that President Trump unleashed on U.S. trade partners. Between 10% and 34% for the biggest trade partners of the United States, the tariffs are expected to affect demand for pretty much everything, including energy commodities.
At the time of writing, Brent crude was trading at $73.23 per barrel, with West Texas Intermediate at $69.94 per barrel, both down from Wednesday but still higher than a month ago and relatively unchanged from a week ago.
“Trump’s tariffs carry the risk of destroying the global free trade order the United States itself has spearheaded since the Second World War,” a Nomura Securities analyst told Reuters.
“For oil prices, the focus now shifts to the global growth outlook, which is likely to be revised downward due to these higher-than-expected tariffs,” IG analyst Yeap Jun Rong told the publication, noting that traders had expected a tighter range of tariffs, between 10% and 20%.
“The scale of some of Trump’s tariffs will raise global demand concerns. There’s also increased uncertainty, with markets waiting to see how trading partners retaliate,” ING commodity analysts wrote in a note earlier today.
“This is close to the worst case that the market feared,” Ajay Rajadhyaksha, global chair of research at Barclays, told the Financial Times. “This will cause damage.”
“Tariffs have a negative effect on the overall economy, and anything that has a negative effect on the overall economy is going to — all other things being equal — damage oil demand,” Pavel Molchanov from Raymond James told Bloomberg.
Oil demand could also suffer an aftershock from the tariffs when the United States’ trade partners begin to retaliate, which several have threatened to do. China already did, reciprocating Trump’s first tariffs with its own, targeting chiefly energy imports. China, however, is better positioned to replace U.S. energy imports with alternative supplies than, say, the European Union.
Source: By Irina Slav from Oilprice.com