The trade wars’ effect on crude prices

The trade wars’ effect on crude prices

By Joaquín Robles

12/07/2018

XTB Analyst

Crude prices fell below $77.50 per barrel after the U.S. raised levies on Chinese products. If the tensions of this trade war it maintains with the world’s second-largest global power escalate, it could threaten global growth. As a consequence, crude demand would decrease and prices would continue to fall.

Crude prices

New York futures dropped by 1.3 percent after the Trump administration revealed a tariff list on $200 billion in Chinese goods. These products could have a 10 percent tax after the public consultation that ends on August 30. Other risk assets, Chinese and U.S. stocks, fell even more. Meanwhile, safe-haven assets such as the yen and treasury bills went up.

Oil is trading near three-year highs due to concerns over supply shortage. This uncertainty stems from production disruptions in Libya and Venezuela, as well as new U.S. sanctions on Iran. These factors hinder the OPEC’s promise to increase production to maintain crude prices. The signs of the reduction in U.S. stocks and decreased production in Norway and Gabon will increase the risks. The escalation of this trade conflict between the U.S. and China is increasing fears related to global economic growth.

August West Texas Intermediate stands at $73.17 per barrel in the New York Stock Exchange. The total volume traded was approximately 33 percent higher than the 100-day average.

In the meantime, Brent crude for September delivery fell to $77.60 per barrel in the London ICE Futures. This global index traded with a $6.07 prime, as compared with WTI.

Trade War

The levies implemented by the administration will cover nearly half of all U.S. imports from the Chinese nation. This will be the case if the $200 billion in levies enter into force. The list of products that the White House refers to also includes oil by-products such as motor fuel, kerosene, and gasoline. In addition, it includes other articles like clothing, TV parts, and refrigerators.

In the meantime, the United States indicated it will adopt a more flexible stance for Iranian crude buyers. Some countries will likely seek exemptions to Iranian crude purchases. The U.S. will consider said applications, according to Secretary of State Mike Pompeo. In June, the Department of State said it was pressuring allies to end all Iranian crude imports. The deadline is set for November 4 and no exemption will be offered after that.

Iranian Crude       

Even so, there are already signs that the threat of said renewed sanctions is discouraging some Asian countries from purchasing Iranian crude. September shipments will be the last sent to Japan. If the Asian nation does not receive an exemption to U.S. restrictions, this could eliminate 1 million barrels per day of Iranian crude exports from the market.

The threats to supply seem to worsen with a strike that is reducing Norway’s production for the first time in six years. In Gabon, Western Central Africa, production was halted at several sites operated by Total SA, after a strike that began on Monday. For its part, Venezuela’s oil rig count went down for the six consecutive month, reaching 15-year lows.

For more information on this topic, visit Energía16

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