Experts debate the damage of a 5 percent tariff to the crude market: File Image/Pixabay
Leave it to U.S. president Donald Trump to end the week with a bang, but not in a way that pleased Wall Street or crude traders, both of whom reacted predictably after the brash billionaire ordered American companies to find alternatives to doing business with China - his response to Beijing threatening that crude would be among the U.S. products hit by tariffs of 5 percent as of September 1.
The Dow on Friday dropped more than 620 points shortly after Trump's retaliatory tweet, followed by crude prices, albeit not as drastically as has been the case in earlier recent sessions: Brent fell 50 cents to $59.40 per barrel, and West Texas Intermediate fell $1.18 to settle at $54.17 per barrel.
Softening the blow considerably was a highly-anticipated speech by Jerome Powell, chairman of the U.S. Federal Reserve, at an annual economic symposium in Jackson Hole, Wyoming: he reported that the U.S. economy is in a "favorable place" and his reserve will "act as appropriate" to keep the current economic expansion on track - although it's still unknown whether the central bank will cut interest rates at its next meeting or not.
Michael Tran, RBC Capital Markets
U.S. producers need China, not the other way around
Some experts thought it was remarkable that oil prices on Friday didn't fall further, given that this is the first time the commodity has been dragged into the U.S./China trade war and the possible consequences: "With China being the world's foremost crude import growth region, U.S. producers need China, not the other way around," explained Michael Tran, director of energy strategy at RBC Capital Markets.
He added, "The U.S. will have to find alternative buyers for their crude, which will be a challenge given the weakening global demand backdrop."
John Coleman, an oil analyst at consultants Wood Mackenzie, noted that the tariff on oil imports would likely "shut off flows from the U.S. to China," leaving exporters to market a rising tide of shale oil to South Korea and Japan.
One U.S. crude trader told Reuters that a result of this fracas is that oil prices "Have further to fall; the arb has to widen for U.S. oil to find markets."