The trade war between the US and China is likely to lead to a decrease in the West Texas Intermediate (WTI) prices, the UK-based Capital Economics consulting company said in its report .
In general, Capital Economics expects the price of oil to fall as supply picks up, while demand slows in tandem with softer economic growth in China (2018-19) and the US (2019-20).
As expected, OPEC and its allies agreed to raise oil output by up to 1 million barrels per day in June. The group had been under-producing relative to its quota in large part due to a slump in Venezuela’s supply. Meanwhile, we expect US shale firms to raise output further, incentivised by high prices. Admittedly, a key risk to our forecast is Donald Trump’s decision to re-impose sanctions on Iran. This is likely to restrict Iran’s ability to export and lead to lower production there," said the report.
The current forecast of the consulting company assumes that Iranian crude output falls by 1 million barrels per day. "But we think that this will be largely offset by a rise in supply from Saudi Arabia. Accordingly, the market should be in surplus in 2018-19."
The Capital Economics experts pointed out that for now, the oil market has largely shrugged off the negative implications of rising trade tensions.
"However, if nothing else, a marked downturn in global trade volumes would lead to lower demand for transport fuel," said the report.
What’s more, the report said that China has threatened a 25 percent tariff on crude imports from the US, which would probably depress US oil prices (WTI).
US President Donald Trump has said the United States may ultimately impose tariffs on more than a half-trillion dollars’ worth of Chinese goods.
Trump confirmed that the United States would begin collecting tariffs on $34 billion in Chinese goods and warned that subsequent rounds could see tariffs on more than $500 billion of goods, or roughly the total amount that the United States imported from China last year.
China immediately accused the US of starting "the largest trade war in economic history to date" and responded by imposing 25 percent tariffs on $34 billion worth of US goods, including soybeans, automobiles, and lobsters.
This marks the start of the trade war between the two countries.
World media monitoring