Post by : Mumtaaz
Qadiri
On Friday, the prices of oil hardly changed after they went down by more than 1% the day before. Traders and investors were trying to understand how new higher taxes, called tariffs, by the United States might affect the world economy and the demand for oil. Brent crude oil, one of the main types of oil traded worldwide, rose just a little — by 4 cents — reaching $71.74 per barrel. At the same time, U.S. West Texas Intermediate (WTI) crude oil went up by only 1 cent to $69.27 per barrel.
Even though oil prices stayed almost the same on Friday, the price for Brent oil was expected to rise by almost 5% during the whole week. WTI oil was set to go up by more than 6% for the week. These increases happened after U.S. President Donald Trump said he might put tariffs on countries like China and India if they continue buying oil from Russia. This was meant to pressure Russia to stop its war in Ukraine.
New US Tariffs Are Now in Focus for Investors
On the same day, investors and traders were more focused on the new tariffs announced by the U.S. government. These new tariffs were set to start on August 1. The tariffs mean that many goods coming into the U.S. from other countries like Canada, India, and Taiwan will have extra taxes. These taxes will be between 10% and 41%. The tariffs were put in place because these countries did not agree on trade deals with the U.S. before the deadline.
President Trump signed an official order to put these tariffs in place. This means the U.S. will charge these extra taxes on imports from many countries and foreign places that did not meet the trade deal deadline.
Tariffs Could Slow Down Economic Growth
Many experts say that these tariffs might make it harder for the economy to grow. When tariffs raise the prices of goods, people and companies have to spend more money. When prices are higher, people might buy less. This could slow down the whole economy.
If the economy slows down, the demand for oil also tends to fall. That is because factories produce less, and people do fewer activities that use fuel. When fewer products are made and sold, less oil is needed. This is why tariffs can affect oil prices by reducing demand.
Inflation Is Rising in the US Due to Existing Tariffs
There is already evidence that tariffs have caused prices to go up in the United States. The U.S. is the biggest consumer of oil in the world. In June, inflation — which is the general rise in prices — went up. Part of this rise happened because tariffs made imported goods like furniture and entertainment products more expensive. When prices rise, people’s money does not stretch as far as before.
Because of this, many experts believe that price increases will continue during the second half of the year. This could make it harder for the U.S. central bank, called the Federal Reserve, to lower interest rates soon.
Higher Inflation May Delay Interest Rate Cuts by Federal Reserve
The Federal Reserve uses interest rates to help control the economy. When inflation is high, the Fed usually keeps interest rates higher to slow down price increases. Right now, many think the Fed will not lower interest rates until at least October. Keeping interest rates steady means borrowing money remains more expensive.
Higher borrowing costs can make it harder for businesses and people to borrow money. This can slow down economic growth, and in turn, reduce the demand for oil. So, the Federal Reserve’s decisions about interest rates can also affect oil prices indirectly.
High Borrowing Costs Could Lower Oil Use
If borrowing money stays expensive, companies may invest less in building or expanding their businesses. People might also spend less money on things like cars, travel, or new homes. When the economy slows down, less fuel is needed because factories run less and people travel less.
Therefore, high interest rates can cause oil demand to fall, which can put downward pressure on oil prices.
Threats of Tariffs on Russian Oil Buyers Support Oil Prices
At the same time, President Trump’s threats to impose very high tariffs — even up to 100% — on countries that buy oil from Russia have helped keep oil prices higher. Many traders worry that these tariffs would disturb the normal flow of oil trade in the world. If less Russian oil is sold, it means there will be less oil available on the market.
Less oil supply usually pushes prices up because buyers have to compete to buy the smaller amount of oil that is available.
China and India’s Russian Oil Purchases Are at Risk
Analysts from the bank JP Morgan said that Trump’s warnings to China and India about penalties on buying Russian oil could affect about 2.75 million barrels of oil per day. This is a large amount.
China is the world’s second biggest buyer of crude oil, and India is the third biggest. If these two countries stop or reduce buying Russian oil, it could make the world oil supply tighter.
Sanctioning Russia Could Raise Oil Prices Sharply
JP Morgan analysts also said it will be very difficult for the U.S. government to stop Russia from selling oil without causing oil prices to rise sharply. Russia is the world’s second largest oil exporter. If Russia’s oil is sanctioned or limited too much, the shortage will push prices up.
This means that trying to punish Russia for its war can lead to higher oil prices. Higher oil prices can hurt economies around the world, making the problem complicated for the U.S. government.
Tariffs and Sanctions Affect Oil Prices
Oil prices stayed mostly the same on Friday after a previous fall. The market is reacting to new U.S. tariffs that may slow down the economy and reduce the demand for oil. Inflation in the U.S. is rising because of tariffs, which may delay interest rate cuts and could lower oil consumption.
On the other hand, threats of very high tariffs on Russian oil buyers are supporting oil prices because these tariffs may reduce the supply of oil. This situation shows how trade policies, inflation, interest rates, and international politics can all affect global oil prices in many ways.
English
