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A Slippery Slope

0620_Oil

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What's going on?

The price of a barrel of crude oil fell by more than 1% on Tuesday. Investors are likely worried that an all-out trade war between the US and China could reduce demand at the same time as oil production is likely to increase.

What does this mean?

The price of oil has been rising consistently for a while, hitting its highest level since 2014 earlier this year. Now, investors believe that OPEC – the powerful group of oil-producing countries – is likely to agree to increase production at its Friday meeting (tweet this). Russia’s in favor of an increase and countries like Venezuela and Libya are suffering from oil production disruptions, stemming supply. Iran’s not on board, but it may be forced to toe the party line.

Why should I care?

For markets: The prices of stocks around the world fell, too.


Investors sold stocks in major markets around the world on Tuesday as trade tensions raged on. Oil was impacted too: the risk of import taxes (a.k.a. tariffs) hitting oil products – which could result in lower oil demand – weighed on its price. Instead, investors bought safer assets like government bonds, pushing those prices up and yields down.



The bigger picture: The US and China trade war impacts several other Asian countries.


In the latest round of proposed tariffs, the US is considering widening its net beyond products made in China to also include goods that are finished in the country – i.e. products made from parts from neighboring countries like South Korea and Taiwan that are then assembled in China (including electronics, for instance). Import tariffs likely mean some companies will face higher costs to produce their products. They’ll either have to raise their prices (which could mean they sell less – hitting their suppliers, too) or suck it up themselves, meaning lower profits.

Originally posted as part of the Finimize daily email.

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