The reciprocal prices on which the world has retained the breath are here, the stock markets are in shock and crude oil has plunged. The question is now whether prices will harm oil demand longer or if the effect will be transient, prices bouncing shortly before.
For the moment, a majority of observers seem to agree that the prices that US President Donald Trump have imposed on all the business partners in the country would harm the oil demand very seriously and continue to injure it for their duration.
The International Monetary Fund was released with a statement, in which its chief, Kristalina Georgieva, said the prices were a threat to global economic growth. “We always assess the macroeconomic implications of the pricing measures announced, but they clearly represent a significant risk for global prospects at a time of slow growth,” she said, adding: “We call on the United States and its business partners to work constructively to resolve trade tensions and reduce uncertainty.”
It is this argument of damage to economic growth that most analysts point to the prediction of dark times to come for oil prices. As Gabelli’s funds say, while direct crude prices are not “very significant”, “the biggest impact on the oil market is the uncertainty of global demand linked to President Trump’s prices, because global expansion stimulates the growth in raw demand”.
Related: Trump prices have triggered greater drop in oil prices since 2021
Indeed, Julian Lee de Bloomberg wrote Thursday in a chronicle that even if oil itself was mainly spared by pricing, demand was necessarily injured because the largest engine of demand was Asia, and Trump slapped Asian countries with some of the highest additional rates. Lee sees an economic slowdown in Asia resulting from prices which would inevitably lead to a drop in oil demand that could last a certain time.
However, there is a counter argument to be made. The prices have designed oil prices. This means that oil is now more affordable for Asian importers. This is an interesting question if they would lack a chance to reconstruct their crude stocks, in particular in anticipation of an inevitable economic slowdown – or catch it and buy more cheap oil.
There is also the question of how long these prices will remain in force. According to Trump’s vice-president, JD Vance, the goal is to bring manufacturing home. “This is fundamentally what it is, the national security of manufacturing and making things we need, from steel to pharmaceutical products,” said Vance to Media, quoted by Reuters.
Not everyone sees it this way, to say it slightly. According to Henry Hoffman, PM of the Catalyst Energy Infrastructure Fund, “the Trump administration’s decision to base them on a net-import / import ratio seems less on reciprocity or equity and more on the bias of a brutal instrument to force lever negotiation.
This is why prices will probably not become a permanent element of global trade, harming growth prospects and decrease oil prices. “It is difficult to imagine that these prices remain in the long term. They seem more conceived as a provocation-an opening movement splashing in a tit-form fracture game aimed at accelerating commercial concessions,” says Hoffman, warning, however, that they can still turn around. If this happens, it would harm the emerging and smaller savings the most.
As bad, this means that the largest oil consumers will remain relatively unscathed. China, which is always the objective of the attention of analysts with regard to oil, is already preparing its response to prices – and it will be the diversification of stimulus and export markets. CNBC cited several China analysts as expecting an emphasis on local economic action instead of reprisals, which somewhat ironically suggests that “the bruising instrument” could end up having its objective. It should be noted – as analysts have done – that China has a growth target to be achieved, and for that, it needs energy, in other words, oil and gas.
It is unlikely that China is the only one to diversify the export markets and to forge or strengthen trade relations with countries other than the United States – if the prices remain. If the commentators consider them a blunt instrument for commercial negotiations, as Hoffman of the Energy Infrand Fund Catalyst, they will be removed sooner as long as the target countries undertake to “fix” their surpluses with the United States. It could still prove to be a mole instead of a mountain.
Of course, there is always the possibility that the prices remain in place for more than a few weeks, which will really trigger these processes of diversification and creation of commercial relations. Like sanctions against Russia, however, prices will change, in all likelihood, models on the global oil market but will not really kill the demand for oil, regardless of the short -term effect of prospects of economic growth.
By Irina Slav for Oilprice.com
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