US-China phase one deal to have modest impact on oil market

US-China phase one deal to have modest impact on oil market

BAKU, Azerbaijan, Jan. 28

By Leman Zeynalova – Trend:

US-China phase one deal is expected to have a modest impact on oil market, Trend reports citing GlobalData, a leading data and analytics company.

Washington and Beijing signed a ‘phase one trade deal on 16 January. As part of the agreement, China will increase the value of energy imports by $52.4 billion above 2017 levels over the next two years.

“The economic conflict between the world’s two largest economies, which began as a tariffs dispute in January 2018 and escalated into an all-out trade war, has significantly weakened global crude demand – to an extent that it will take time for demand to recover,” said Indrajit Sen, Oil & Gas Editor at GlobalData.

The US-based Energy Information Administration (EIA) predicts that an estimated average global oil production of 102.37 million b/d in 2020 will continue to outstrip forecasted average consumption of 102.11 million b/d.

Weaker global crude consumption in 2020 is being largely attributed to the effects of the US-China trade dispute, according to the company.

“This could mean that despite the OPEC+ alliance deepening their production cut agreement to 2.1 million b/d during the first quarter of 2020, Brent crude prices will not be lifted,” said Sen.

Another key geopolitical factor that affected the oil market is the recently witnessed tension in the Middle East.

“In the aftermath of the assassination of Iranian Quds force General Qasem Soleimani in a US airstrike in Baghdad on 3 January, global benchmark Brent crude spiked by as much as 4.6 percent to reach a peak of $69.3 a barrel, the highest point since May 2019. Furthermore, on 20 January, Brent crude rose by a mere 1 percent during early trading, hitting $65.5 a barrel, due to Libya’s civil war threatening to disrupt the supply of around 800,000 barrels a day (b/d),” said GlobalData.

Sen noted that the oil market’s subdued reaction to these regional incidents, which caused only minor spikes to crude prices, indicates that the commodity market is being driven, now, more than ever, by perceptions around supply and demand.

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Follow the author on Twitter:@Lyaman_Zeyn

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