Daily Management Review

US-China trade war, slowdown in global economies may drag oil prices down


06/19/2019


The oil market may collapse in the event of an escalation of the trade war between China and the United States, analysts of Bank of America Merill Lynch wrote in a weekly global energy report.



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If trade tensions between countries increase, China will refuse to comply with sanctions against Iran and resume buying Iranian oil. This could bring down price of a barrel of WTI oil to $ 40. As of June 18, WTI futures are trading at a price of $ 54 per barrel. That is, the fall can be almost 27%.

Before the US sanctions against Iran, the volume of oil supplies from the Islamic Republic to China was about 600,000 barrels per day. About 30% of total Iranian oil exports went to China. Last fall, China's largest oil companies China National Petroleum Corp. and China Petrochemical Corp. refused to buy oil in Iran, agreeing to comply with the terms of the US sanctions against Iran. In early November, Washington made exceptions for eight countries (including China) that could continue to purchase Iranian oil. In May, it became known that China stopped oil purchases in Iran.

In addition to the trade war, fuel markets are also depressed by the overall slowdown in world economies, according to BofA. The demand for oil in the world is declining, while production is increasing. Thus, in 2019, global oil demand will increase by only 900,000 barrels per day, and will grow by 1 million barrels next year, the bank predicts. At the same time, oil production in the United States over the past 12 months grew by 1.4 million barrels per day. “As the demand for oil decreases, oil prices should fall,” Bank of America concludes.

The International Energy Agency (IEA) on June 14 lowered its forecast for oil demand growth in 2019 amid instability in world trade. According to agency experts, trade wars negatively affect growth prospects.

source: forbes.com






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