Abu Dhabi: The ongoing trade tensions between the US and China are expected to impact oil prices, due to concerns about demand, analysts said.
US and China, two of the world’s largest economies are levying tariffs on each other’s imported goods raising concerns about the global growth. The US increased tariffs on $250 billion of Chinese goods in May while Beijing responded with additional levies on nearly $60 billion of US imports. International Monetary Fund also warned about the slowdown in the growth due to the current dispute.
“I think oil prices will struggle to make significant headway from current levels. In other words, upside potential is in short supply. This is due to the softening global economic backdrop and especially the US-China trade impasse,” said Stephen Brennock, oil analyst at London based PVM Oil Associates.
“As things stand, the situation between Washington and Beijing looks set to get worse before it gets better. Needless to say, this will keep a lid on prices gains.”
In similar comments, Mihir Kapadia, the CEO of Sun Global Investments said investors remain nervous about the ongoing Trump rhetoric with China and Mexico on trade.
“With indications of a slowing global economy, investors fear the tariffs would further downgrade manufacturing output and therefore oil demand.”
Rystad Energy, the independent energy research and consulting firm in Norway with offices across the globe also expects crude oil prices to stay flat in the near term due to trade tensions.
“The oil market is again in a tug-of-war situation with downwards pressure currently dominating. Downside pressures exist from weak demand and fear of economic growth degradation, partially induced from protectionist policies in the US and partially from structural forces, as exemplified by Chinese PMIs showing a dip again in May,” said Bjornar Tonhaugen, Head of Oil Market Research at Rystad Energy.
Global benchmark Brent touched $60 per barrel early last week but rose on Friday after Saudi Arabia and Russia signalled about the continuation of the production cut agreement till the end of 2019 to rebalance oil markets.
However, analysts feel that extension of the cuts is not expected to provide much support to oil prices as it is “largely baked into the sentiment.”
“An extension is more or less guaranteed and is largely baked into sentiment. As such, I don’t see it providing much of a bullish catalyst for the oil market. That said, global oil stocks should draw in the coming quarter but even so, $70 per barrel oil seems like a distant reality in the near-term,” added Brennock
Iran oil exports dip in the wake of sanctions
Meanwhile Iran, which is under US sanctions exported about 500,000 to 600,000 barrels per day of oil and condensate in May, according to Dr Sara Vakhshouri, President of Washington based SVB Energy International.
“Most of Iran’s oil sales and delivers in the month of May took place in the grey market through middlemen,” she said. Iranian oil production in May was at 2.35 mbd (million barrels per day), down from 2.6 mbd in April.
