Americas News
Trump Causes Sudden Switch to Bearish Trading Sentiment, Oil Sheds 2%
U.S. president Donald Trump's latest tariff threat – this time a 50 percent tariff on Brazil, Latin America's largest economy – caused oil prices on Thursday to suffer a 2 percent hit after a week of modest gains.
Brent settled down $1.55, or 2.2 percent, at $68.64 per barrel, and West Texas Intermediate settled down $1.81, or 2.6 percent, at $66.57 per barrel.
Trump's tariff on exports to the U.S., announced on Wednesday, was reportedly spurred by Brazil's trial of former president Jair Bolsonaro concerning charges of plotting a coup to stop counterpart Luiz Inacio Lula da Silva from taking office in 2023; the "reciprocal" tariff of 50 percent (compared to the existing 10 percent between the two countries) would take effect August 1.
Despite the 2 percent-plus loss for oil on Thursday, Harry Tchilinguirian, group head of research at Onyx Capital Group, claimed the market has become inured to Trump's tariff announcements: "People are largely in wait-and-see mode, given the erratic nature of policymaking and the flexibility the administration is showing around tariffs."
Thursday's trading session was also rife with speculation that the Organization of the Petroleum Exporting Countries (OPEC), which agreed to boost output more than expected for August (by 548,000 barrels per day next month instead of the long-planned 411,000 bpd hike), may halt the hikes.
Ole Hansen, head of commodity strategy at Saxo Bank, said traders could be interpreting this as a sign that "the market may not be able to cope with more oil……we are potentially seeing the risk of an oversupplied market" once the peak summer demand period ends.
The shift in analytical mood was jarring considering that in the previous session, Andrew Botterill, energy, resources and industrials partner at Deloitte Canada, told media the OPEC hike isn't likely to have a dramatic increase on prices.
He said, "We do have very robust demand around the globe; that's the reason why we're still talking about high US$60 oil right now is because demand is quite strong, giving opportunity for OPEC to increase those volumes."
Not everyone was prone to shifting sentiment on Thursday: Rebecca Babin, senior energy trader at CIBC Private Wealth, acknowledged that demand is typically lower in the fall months but pointed out, "We know that supply is likely coming and we're seeing it, it's on the horizon, we're pricing it, we're putting it down in our models, but does demand, which actually has been really resilient for the first half of the year kind of really take that downward slope that I think many analysts are penciling in?"
Babin went on to remark that there could be an "upside surprise" to oil prices in the coming months if demand remains stronger than anticipated: "I just don't think that's on anyone's radar."
