Ongoing Trade War with China Could Plunge Crude Oil Prices | Financial Buzz

Ongoing Trade War with China Could Plunge Crude Oil Prices

President Donald Trump and his administration’s threat to impose additional tariffs shook up the market on Thursday, and crude oil prices were no exception. A tweet from the President saying that he would institute “a small additional Tariff of 10% on the remaining USD 300 Billion of goods and products coming from China” and into the U.S. was enough to put the oil market in a tailspin. Trump added that this additional tariff  “does not include the USD 250 Billion already tariffed at 25%.”

Some notable impacts following the President’s tweet include:

  • West Texas Intermediate saw its steepest drop in four years, falling as much as 4% 15 minutes after the initial tweet, and as much as 8% at the end of the day.
  • Brent crude was trading at USD 60.94 early Monday, down around 1.5%
  • Bank of America’s Merrill Lynch forecasts Brent crude to be about USD 60 a barrel in the upcoming year, but warns that prices could drop by as much as USD 20-30 a barrel following the new imposed tariff looking to take place in September.

As the trade war wages on, China could potentially look outside of the United States and commence trading with Iran for crude oil. China’s decision to purchase Iranian oil in a further defiance of U.S sanctions could operate as a double edged sword according to some analysts. “Iran would welcome any opportunity to increase its production whether or not it breaches the terms of the U.S. sanctions, but the strategy there would introduce China to a partner over which it doesn’t have an enormous amount of control,” Edward Bell, Director of Commodities Research at Emirates NBD told CNBC’s “Capital Connection.” 

Analysts at Bank of America claim the latest round of U.S tariffs could reduce global oil demands by 250,000 to 500,000 barrels per day, adding onto the demand deterioration. The International Energy Agency (IEA) dramatically changed its demand growth outlook in the past couple months. In the beginning of the year, the Agency, saw consistent growth at 1.4 Million barrels a day. Over the next six months, estimates of demand growth have been cut to just 560,000 barrels a day. Demand weakness could hinder an over supply of the production of oil, which is going to have a disproportionate impact on prices in the future.