US-China trade war looms over oil market

Abu Dhabi: Uncertainties in US-China trade relations and the threat of new US tariffs could play a negative role on oil prices, analysts said.

Oil prices fell by more than seven per cent on Thursday after US president Donald Trump tweeted that he would start adding 10 per cent tariffs on $300 billion worth of Chinese goods in September. The major slide in prices was Brent’s biggest dip in over three years and West Texas Intermediate’s (WTI) in over four years, highlighting the extremely negative reaction from the markets.

Prices gained some ground on Friday, with Brent trading at $61.89 and WTI at $55.66 per barrel.

Ongoing discussions between US and Chinese officials are set to resume in Washington in September. The US already increased tariffs on $250 billion of Chinese goods back in May, with China responding with tariffs of its own on $60 billion of US goods.

“Certainly the dynamics for the next six months is going to be highly volatile, one of the main reasons oil markets have been so volatile and changing directions in short periods is down to the uncertainty in US trade policy and what kind of trade retaliation we will see in response,” said Edward Bell, commodity analyst, Global Markets and Treasury, Emirates NBD.

Bell added that trade uncertainties between the world’s two largest economies would have a bigger impact on oil prices than even geopolitical tensions involving Iran, which on Sunday announced that it had seized another international oil tanker for smuggling oil. The tanker was reportedly carrying 700,000 literes of fuel.

“Right now geopolitical tensions are not providing or pushing significant higher prices, it is perhaps preventing them from falling but ultimately it’s not changing the fundamentals at this stage — which are mainly very much trade war concerns.

“What transpires geopolitically can be reversed fairly quickly in a day of trading once the market settles,” he added.