InvestorQ : why cruide oil prices fell down 200 points yesterday
Raju naik dungavath made post

why cruide oil prices fell down 200 points yesterday

Answer
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Ayushi Kampani answered.
1 year ago


I suppose you are talking about the crude prices on the MCX commodity futures yesterday. The reason for the oil price fall was a mix of reasons. As you know, oil price is largely driven by global factors and not so much by domestic factors since Indian relies on imports for 85% of its oil needs.

Firstly, the oil markets were expecting a rate cut by the US Fed of nearly 50 bps. In fact, oil price had rallied the previous day on these expectations. However, the oil prices saw a disappointing reaction when the Fed cut rates by just 25 bps on July 31st.

Secondly, the statement by Donald Trump that the US would impose additional tariffs of 10% on Chinese imports to the tune of $300 billion had an impact. Such trade tariffs slow trade and also slow growth. Normally, weak growth leads to lower demand for oil and therefore weaker oil prices. This was the main reason that oil prices fell so sharply.

Thirdly, there is also the geopolitical risk in the Middle East that is waning. While markets were expecting the situation near the Strait of Hormuz to get worse, it has managed to remain steady. That also led to lower oil prices.

Fourthly, the expectation was that the US oil supply would be affected by the hurricane last month. However, the production came back to normal quickly and that had an impact on bringing down prices.

While all these factors combined, the one factor that really drove oil prices sharply lower was the announcement by Donald Trump that additional tariffs would be imposed.