Jack Allardyce, oil and gas research analyst at Cantor Fitzgerald Europe, comments on the impact of the looming trade war on oil demand.
Crude prices took an absolute bath yesterday despite bullish inventory data, with Brent suffering its largest one-day drop in two years as escalating US-Sino trade tensions threatened demand.
The sell-off was sparked as trade tensions between the US and China intensified, with the potential for a further US$200 billion of tariffs on Chinese goods casting further doubts over the demand outlook, a situation that was then exacerbated after Beijing retaliated by saying it could tax US oil imports as a counter measure.
A surging dollar following a surprisingly strong US inflation report, which increased the prospects of the Federal Reserve raising interest rates twice more this year, also hampered benchmarks.
This enabled the market to shrug off extremely bullish EIA data showing nearly 13m barrels of draw in crude stockpiles last week - the biggest slide in almost two years.
Will this trade war continue to threaten demand? It is likely to harm WTI more given that Chinese taxation would make it uncompetitive versus Brent despite the discount. Indeed, based on current fundamentals (falling stocks, lack of capacity) and Iranian sanctions on the horizon, we see a bit of upside for Brent. In short, the trade war will probably cause a widening of the range between the benchmarks with a higher top level.
Read the article online at: https://www.oilfieldtechnology.com/special-reports/13072018/oil-demand-under-threat-from-trump-trade-war-cantor-fitzgerald-europe/