- Trump sent letters to many countries, announcing higher tariffs that will take effect in August.
- OPEC said on Thursday that it expects weaker oil demand over the next four years.
- Crude inventories rose sharply while gasoline stocks dropped.
Oil prices eased on Thursday as traders worried about the outlook for demand amid renewed tariff threats. At the same time, OPEC downgraded its outlook for demand for the coming four years. However, a weak dollar made oil cheaper for foreign buyers, increasing demand.
Trump sent letters to many countries, announcing higher tariffs that will take effect in August. Notably, the US president slapped a 25% tariff on imports from Japan and South Korea. At the same time, he threatened to impose a 50% levy on copper imports. Moreover, he warned about the likelihood of tariffs on semiconductors and pharmaceuticals. These threats raised concerns about the impact of tariffs on the global economy and oil demand.
Furthermore, higher tariffs would result in higher import costs in the US, driving up inflation. A spike in price pressure would prompt the Fed to maintain high borrowing costs. This, in turn, would hurt economic performance and oil demand.
However, the impact of Trump’s new tariff threats was muted. He has given countries additional time to negotiate for better trading terms. Despite sending letters, the new tariff deadline has been pushed back to August 1. Additionally, Trump seems open to extensions past this date to encourage talks.
Meanwhile, OPEC said on Thursday that it expects weaker oil demand over the next four years. The primary cause of this is a slowdown in China’s growth. China is the largest consumer of oil. Therefore, if the economy is struggling, oil demand will likely remain weak.
Elsewhere, the dollar dropped with Treasury yields after a successful auction on Wednesday. Demand for the US 10-year note was higher than expected, leading to a decline in Treasury yields. Additionally, market participants paid attention to the FOMC meeting minutes. The report revealed that policymakers were more willing to cut interest rates later this year. This also weighed on the dollar. A weak dollar makes oil cheaper for overseas buyers and increases demand.
Crude inventories (Source: EIA)
Meanwhile, data on Thursday showed a mixed picture of demand. Crude inventories rose sharply while gasoline stocks dropped. Crude rose by 7.1 million barrels. Meanwhile, economists had expected a 2.1 million barrel drop. On the other hand, gasoline demand jumped by 6%.
