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Demand for oil is skewed by Trump's tariffs

The oil prices fell on Thursday, as market participants viewed the latest tariff announcements from U.S. president Donald Trump as a threat against global economic growth. However, signs of strong U.S. gas demand helped to limit losses.

Brent crude futures fell 3 cents to $70.16 per barrel at 0401 GMT. U.S. West Texas Intermediate Crude lost 6 cents, to $68.32 per barrel.

In a recent note, Kpler, an analytics firm, noted that the geopolitical risks premiums had diminished with the Israel-Iran ceasefire.

After a public spat, Trump threatened to impose a 50% penalty on Brazil's exports to the U.S.

Trump had announced tariffs for copper, semiconductors, and pharmaceuticals. His administration also sent tariff letters to Iraq, the Philippines, and other countries. These letters were added to more than a dozen that his administration issued earlier this week, including to U.S. powerhouse suppliers South Korea, and Japan.

Minutes released by the Federal Reserve on Wednesday show that policymakers are still concerned about inflationary pressures caused by Trump's tariffs. Only "a few" officials said they thought interest rates could drop as early as this month.

The cost of borrowing increases with higher interest rates, and the demand for oil decreases.

The Energy Information Administration reported on Wednesday that the rise in crude oil stocks and declines in gasoline and distillate stockpiles last week helped support prices. The EIA reported that gasoline demand increased 6% last week to 9.2 millions barrels per day.

J.P. Morgan stated in a note to clients that global daily flights averaged 107,600 during the first eight days in July. This is an all-time record. Flights in China reached a peak of five months, and port and cargo activities indicated a'sustained growth' in trade activity from last year.

The note stated that "year to date, the global oil demand has grown by an average of 0.97 million barrels a day, which is in line with our prediction of 1 million barrels a day."

Tony Sycamore is an analyst with IG. He said that there are doubts about the increase in production quotas recently announced by OPEC+, since some members have already exceeded their quotas.

He said that "others, such as Russia, are unable meet their targets because of damaged oil infrastructure."

OPEC+ producers will approve a big increase in output for September as they finish both the unwinding and the United Arab Emirates moving to a higher quota.

(source: Reuters)