Little Progress Made
A lack of progress on U.S.-China trade negotiations has continued to put a dent in global oil prices. The 16-month U.S.-China trade war has added to investor concerns about slowing economic growth, which may continue to push crude prices lower. Brent crude, a major trading classification of light crude oil, continues to hover just above $60 a barrel, which is less than half of 2008’s record high price of $143.95 a barrel. The other main benchmark for oil pricing is U.S. West Texas Intermediate (WTI). Trade tensions have also held WTI pricing to around $57 a barrel. While President Donald Trump continues to emphasize that progress is being made on trade-related discussions, it’s clear that energy analysts are skeptical that a deal will be made within the near future.
Commerzbank, a leading corporate European bank headquartered in Frankfurt, Germany, recently announced that it expected trade conflict headlines to contribute to sideways oil trading for the foreseeable future. Therefore, unless a trade deal is unveiled by the Trump administration, global oil prices are expected to stay flat. The current impact of the trade war has caused Chinese oil producer prices to fall the most in over three years during the month of October (Kelly, 2019).
In addition to trade concerns, the Organization of the Petroleum Exporting Countries (OPEC) has expressed other anxieties related to the rising oil inventory in the U.S., which has further contributed to a global oil glut. However, the Secretary General of OPEC, Mohammad Barkindo, still remains confident that the U.S. and China will eventually agree to a trade deal (AP, 2019). When asked about the timeframe of a deal, Barkindo was unable to give an approximate predication to when the tensions should be expected to ease.
A Suffering Industry
The American oil and gas industry has suffered greatly because of the trade war. U.S. oil exports rely heavily on global economic growth and a rising demand for oil products. Chinese tariffs on U.S. products has hindered growth and stunted global oil demand. Global demand for crude oil has continued to fall throughout 2019. In January, the U.S. Energy Information Administration (EIA) estimated that the global demand for oil would increase by 1.5 million barrels of oil per day; however, these estimates were recently lowered to .9 million barrels of oil per day to account for the trade-related tensions (Blackmon, 2019).
In addition to slowing oil demand, Rystad Energy, an independent energy research organization, has even predicted that the oil industry as a whole may shrink by as much as 4% in 2020 (Blackmon, 2019). These concerns have initiated discussions about cutting oil production in an effort to reduce supply and raise prices. OPEC and Lukoil, Russia’s second biggest oil producer, have been working to negotiate a deal to cut oil production to stabilize the market.
Associated Press. (2019). “Oil falls as US-China trade deal prospects dim.” CNBC: https://www.cnbc.com/2019/11/13/oil-markets-us-china-trade-deal-in-focus.html
Blackmon, D. (2019). “The Oil Industry Needs A U.S./China Trade Deal.” Forbes: https://www.forbes.com/sites/davidblackmon/2019/09/12/the-oil-industry-needs-a-u-s-china-trade-deal/#7b2494dd449b
Kelly, S. (2019). “Oil slips as trade worries offset Cushing drawdown.” Reuters: https://www.reuters.com/article/us-global-oil/oil-slips-as-trade-worries-offset-cushing-drawdown-idUSKBN1XL046