Oil headed for weekly gain as market digests US tariffs

The National

2 days ago

Oil is on track for a weekly gain of nearly six per cent after prices dropped slightly on Friday, as traders weigh the impact of US tariffs reshaping global trade and Washington's threats of economic penalties on Russia.
Brent, the benchmark for two thirds of the world's oil, dropped 0.2 per cent to $71.50 per barrel on 2.44pm UAE time on Friday, while West Texas Intermediate, the gauge that tracks US crude, fell 0.17 per cent to $69.10 a barrel.
'Oil prices are still set to see a solid week-on-week gain,' Daniel Richards, Emirates NBD's Mena economist, said. 'There were strong gains through the start of the week as focus returned to sanctions on Iranian and Russian energy and the rise logged over Monday to Wednesday has still not been eroded.'
The Opec+ alliance is also expected to meet on August 3 to announce the return of a further 548,000 barrels to the market from September.
'This is likely already priced in, so barring any sizeable surprises from the producers' group, the focus for oil markets will likely remain on any tariffs fallout should countries look to retaliate against the US, and on any greater clarity on sanctions as US envoy Steve Witkoff is due to visit Russia,' Mr Richards said.
US President Donald Trump signed an executive order on Thursday imposing ' reciprocal tariffs ' ranging from 10 per cent to 41 per cent on dozens of countries.
Markets will keep a close eye on Mr Trump's tariffs and any retaliatory measures from its targeted trade partners. The President signed an executive order on Thursday that increased the rate on Canada to 35 per cent from 25 per cent, but an exemption for goods under the US-Mexico-Canada trade pact that includes oil remained in place.
The US set levies of 39 per cent on Switzerland and 25 per cent on India. Among Middle East countries, for Syria they stand at 41 per cent, while Iraq and Libya will pay 35 per cent and 30 per cent, respectively. For Jordan and Israel, the rate is 15 per cent.
'There is also still a view within the market that [US] tariffs are, once again, a negotiating gambit, with the 'final' levies unlikely to be close to these levels, as negotiations between the US and its trading partners continue,' Michael Brown, senior research strategist at Pepperstone, said.
Oil traders are also focused on Mr Trump's heightened pressure on Russia to reach a peace deal with Ukraine through the threat of secondary tariffs to be imposed on buyers of Russia crude − such as China and India − if Moscow does not reach a truce by the set deadline, Mr Brown said.
Oil prices are likely to end the week in positive as traders react to such disruption risks as the secondary sanctions on Russia, Joseph Dahrieh, managing principal at Tickmill, said.
'Over the short term, the restriction could help lift oil prices if it is put in place, as crude volumes available on the market could dry up. Although supply pressures from sanctions on Russian and Iranian crude offer some support, ongoing uncertainty from inflation and economic headwinds means the market could see more volatility in the coming weeks,' he said.
The main topic that traders are watching this week is Mr Trump's threat to hit buyers of Russian oil with secondary tariffs, according to Giovanni Staunovo, a strategist at Swiss bank UBS.
'Supply disruption concerns supported crude prices. The tariffs news had only a modest negative impact on prices as the EU and China got either lower tariffs or are still negotiating,' he said.
Still, this is a market that is 'vastly over-supplied', thereby tilting the balance of risks firmly to the downside, and leaving any spikes vulnerable to being sold into relatively quickly, according to Mr Brown.