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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Don't Underestimate The Trade War Impact On Oil Demand

A squeeze on oil demand is looming as a result of the U.S.-China trade war, a senior BP executive told Reuters. Acknowledging the bullish effect of U.S. sanctions on Iran in the short term, Janet Kong, BP’s chief executive of oil trading operations in Asia, said this effect will be short-lived as the market absorbs the shock and moves on to other concerns.

“Going into 2019, I worry about the impact of the U.S.-China trade war, manifesting itself slowly,” the executive said. “The trade war impact has not really shown up in the data anywhere, but it will show up gradually over time. So the supply shock is very sharp and prompt, while the impact from trade war is boiling over slowly.”

There have been voices warning that the trade war will affect oil demand as it affects economic growth in China, but official oil demand forecasts have yet to factor it in, it seems. OPEC’s latest Monthly Oil Market Report, however, did revise the cartel’s forecasts for oil demand in 2019 down by 20,000 bpd to 1.41 million bpd, warning that global economic growth may slow.

The International Energy Agency, on the other hand, has kept its 2019 demand forecast unchanged in the latest fundamentals update, at 1.5 million bpd, up from this year’s projected 1.4 million bpd. Yet the agency noted that demand could be stronger were it not for the trade war and signs of stalling economic growth in emerging economies. Related: $100 Oil Is A Distinct Possibility

While general economic growth patterns are dependent on a host of different factors, the U.S.-China trade war is outside the normal course of events and, according to Kong, likely to drag on for quite a while, which would extend the duration of its negative effect on oil prices.

“The Trump administration wants intellectual property protection,” Kong said. “... reducing subsidies to Chinese SOEs (state-owned enterprises) and open market access by all businesses which are difficult, in my view, for the Chinese government to agree to. So it’s very likely this war will drag on for a long time.”

By Irina Slav for Oilprice.com

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  • yannis on September 25 2018 said:
    Nobody forced you to go to China . You knew the rules. Why are you complaining now?
  • Mamdouh G Salameh on September 25 2018 said:
    The escalating trade war between the US and China will hardly impact on global trade and oil demand since the volume of global trade will not be affected, only the destinations.

    If China was hindered by rising US tariffs from selling $800-billion worth of goods annually in the US, it can sell them somewhere else as its economy is far more integrated than the US economy in the global trade system supported by its silk and belt road initiative. China’s oil imports which are the driver of global oil demand will therefore continue unabated.

    The US may have to replace Chinese imports with more expensive imports from elsewhere. This will lead to rising costs for US customers, higher inflation, widening budget deficit and rising outstanding debts by at least 2.35%. In other words, the US will be the eventual loser in a full trade war with China.

    In view of the above, the Trump administration will be forced to cut its losses by bringing to an end its escalating trade war with China since it could never win this war and reverse its sanctions on Turkey.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Brandon on September 25 2018 said:
    Trump says "oil price is artificially high"? In fact it is artificially low, due to the US shale output growth. But this is capped, so then he says "OPEC are ripping off the entire world", but in fact he's pushing hard to stop Iran oil exports. Reality is: SHALE OIL MARKET IS CAPPED (as we all know) due to environmental effects of waste water disposal with daily M3 tremors everywhere. Plus: consider the negative marginal gains of shale extraction. Plus: consider shale oil producers constantly looking for new areas to drill. Plus... THE US IS LOSING THE BATTLE my dears!
  • The masked avenger on September 25 2018 said:
    Contrary to one posters opinion, China desperately needs the US. There are no other markets to absorb the US consumption. That is simply fantasy. China has already shown a willingness to deal with the tariffs. The Chinese are and have been intellectual property thieves. The EU is not happy with as arent other countries. You cant simply make up other markets, they exist for they dont. China needs the US and they know it.

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