Today, Friday, nervous trading caused the price of oil to dip. This comes ahead of a raft of import tariffs that the two leading world economies, the United States and China, are planning to impose. The U.S. tariffs came into play earlier today.
In total, Brent crude futures dropped by 25 cents, or 0.3% to $77.14 per barrel from their last close. This occurred at around 03:17 GMT. Meanwhile, U.S. West Texas Intermediate (WTI) futures dipped down 15 cents, or 0.2% to a price of $72.79.
Weighing on prices was a rise in U.S. crude inventories of 1.2 million barrels in the week to June 29, to 417.88 million barrels, the U.S. Energy Administration (EIA) said on Thursday.
Of course, the real issue is the looming trade war expected to ignite between the U.S. and China. At 12:01am Washington D.C. time (04:01 GMT) Washington will be imposing tariffs on Chinese goods in a bid to boost domestic production and economic growth.
China did not take this action sitting down and has vowed to retaliate to these tariffs. President Trump announced on Thursday that the grand total of tariffs he is willing to impose will cover over a half-trillion dollars’ worth of Chinese goods.
Stephen Innes, head of trading for Asia/Pacific at brokerage OANDA explained that the situation is looking to be one that is going to seriously affect the country. He referred to it as an unparalleled trade conflict between the world’s largest economies.
Beijing has already responded to Trump’s provocative action by threatening a 25% tariff on U.S. crude imports. However, the Chinese capital is yet to set a date for the introduction of the new policy.
As it stand currently, crude shipments from the U.S. to China amounts to around 400,000 barrels per day for a total of $1 billion a month at current prices. An introduction of tariffs on U.S. oil at 25% would make the oil uncompetitive in China.
One executive from Dongming Petrochemical Group in China has said that he anticipates the tariff on U.S. oil imports to be imposed sooner rather than later. He went on to explain that his refinery has already cancelled U.S. crude imports and is looking to switch to West African or Middle Eastern supplies instead.
The oil market is already tight and a trade war breaking out between the U.S. and China will do nothing to ease this off.
On Friday, FGE, an energy consultancy, issued a warning to the country mentioning a shortage of supplies as a result of U.S. sanctions against Iran and other disruptions. The warning spoke in detail of Iran’s exports, saying its daily exports total around 2.7 million barrels per day, including condensate.
Even if the U.S. allows allies to enjoy some wavers, FGE estimates that up to 2 million barrels per day of crude and condensate will be cut out of markets after the sanctions have been implemented.
Some countries are already reacting to the sanctions and South Korea has said it will not lift any Iranian oil in July. This will be the first time this has happened since August 2012.
Despite Saudi Arabia and Russia reassuring the world that they will raise oil output to offset the loss caused by the disruptions, FGE does not believe that this will be sufficient to compensate for crude losses from Iran, Venezuela and Libya. The final word was that oil prices may well rise to over $100 per barrel.