The U.S. and China will reach a trade deal, and therefore remove the “dark cloud” hanging over the oil market, OPEC Secretary General Mohammad Barkindo said on the sidelines of an energy conference on Wednesday.
The U.S.-China trade spat has weighed heavily on the pace of global economic growth and, as a result, on global oil demand growth in recent months. Oil market participants have been concerned that the prolonged trade war is undermining economies, trade, and oil demand growth and is capping any significant price gains, even when attacks on Saudi Arabia left millions of barrels of oil offline for weeks.
In this environment, analysts and experts are looking at the upcoming meeting of OPEC and its Russia-led non-OPEC partners for clues about whether they might deepen their production cuts in view of flagging global demand growth.
It is too early to discuss if additional cuts are necessary, OPEC’s Barkindo said at the conference in Abu Dhabi today, but noted that the partners in the deal should continue working together in the face of uncertainties in the market.
On the trade war front, U.S. President Donald Trump dashed hopes on Tuesday that there could be an imminent ‘phase one’ trade deal with China.
Speaking at the Economic Club of New York, President Trump said on Tuesday:
“A significant phase one trade deal with China could happen. It could happen soon. But we will only accept a deal if it’s good for the United States and our workers and our great companies, because we’ve been hit very hard.”
Related: Why One Analyst Thinks Tesla's Stock Could Soar To $400
Referring to China, President Trump said “Their supply chains are cracking very badly, and they are dying to make a deal.”
Commenting on the trade developments, Warren Patterson, ING’s Head of Commodities Strategy and Senior Commodities Strategist Wenyu Yao said on Wednesday:
“President Trump’s speech at the NY Economics Club did not provide any new perspective on the progress of a trade deal and hinted that higher tariffs are likely if a deal were not reached soon.”
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- A Bear’s Guide To Oil Markets
- IEA: Peak Oil Demand Is Less Than A Decade Away
- U.S. Shale Will Soon Produce More Oil Than All Of Russia
The war has widened an already existing glut in the market from a relatively manageable 1.0-1.5 million barrels a day (mbd) before the war to an estimated 4.0-5.0 mbd. This glut has been big enough to nullify the impact of geopolitics on oil prices and also absorb a loss of 5.7 mbd from Saudi oil production.
Even a small initial agreement between the two titans to a phased rollback of extra tariffs could stimulate the economic prospects of the global economy and enhance the global demand for oil and therefore prices.
The problem is that China has lost trust in President Trump. He says something today and reneges on it the following day. China will not accept any deal with the United States if it doesn’t include the lifting of the tariffs it has slapped on Chinese exports. However, China could afford to outwait the United States on tariffs having already won the war. Moreover, it has the means to harm the American economy further.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London