Crude oil started the day with gains on reports from Washington that a U.S.-Chinese trade deal is imminent, S&P Global Platts reports, noting Treasury Secretary Steven Mnuchin had said the two were working on the details of the 150-page document.
According to Mnuchin, the deal would include Beijing’s cutting of subsidies for state-owned companies and a disclosure obligation for the central bank of the country on transactions involving foreign currencies.
Yet nothing is final yet, whatever the positive signals. "We have to hear from President Xi and the Politburo of course, but I think we're headed toward a remarkable historic deal," the director of the White House’s national Economic Council, Larry Kudlow, told CNBC this week.
What’s more, according to sources who spoke to Bloomberg, the Trump administration is not unanimous about whether it should press China for more concessions than the ones already granted. If the pressure is too strong the two sides may end up without a deal and President Trump’s recently demonstrated readiness to break off talks if he doesn’t like the terms adds to the uncertainty.
“Speaking of China we’re very well on our way to doing something special,” Trump said after he ended is summit with North Korea’s Kim Jong Un ahead of time after Kim asked for the lifting of Western sanctions and Trump plainly refused. “But we’ll see. I am always prepared to walk. I’m never afraid to walk from a deal, and I would do that with China, too, if it didn’t work out.”
If Trump and Xi reach no deal, Washington will go ahead with its threat to slap a 25-percent tariff on US$200 billion worth of Chinese goods, which, according to analysts, would be bad for both the U.S. and the Chinese economy. It will also no doubt hit oil prices hard, especially WTI, as China’s oil market closes for U.S. crude.
By Irina Slav for Oilprice.com
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Moreover, President Trump may be also keen to show some success in his international negotiations having failed to secure a deal North Korea’s Kim Jong Un.
If Trump and China’s President Xi reach no deal, Washington will go ahead with its threat to slap a 25% tariff on $200 billion worth of Chinese goods. In such a situation, there will be no doubt that China will retaliate particularly against US oil and LNG exports.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London