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A Double Dose Of Chaos For Oil Markets

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If you happened to be on vacation for the last week then we have good news- you didn’t miss much. Just the collapse of trade talks between the world’s two largest economies and a massive ramp in hostilities between two of the largest militaries in the Middle East. We entered May in a cozy bull run for risk assets. Two weeks later markets are collapsing and the White House is looking at proposals to send 120,000 troops to the Middle East to contain Iran. So it goes.

These two events may very well end up having just a modest impact on oil prices. They could also both end up shaping prices more than any other factor in 2019. Therefore, a quick recap is necessary.

On the trade front, the US and China appeared to be sailing towards a mutually acceptable deal in April which helped stock markets soar to or near all-time highs. Risk assets were pricing in a deal with near certainty which is why the recent devolution of relations has hit markets so hard. This all began last week with a Chinese effort to harden their stance on certain deal terms. The renegotiation was met with dismay from the US side resulting in fresh tariffs on more than $100b of goods and a threat of an additional 25% tariff on $300b more. China responded in turn with fresh tariffs of their own, and suddenly the near-certain deal feels highly uncertain. Both sides are beginning to acknowledge the spat will hurt the global economy and increase inflation at home. To salve the wounds, Beijing…




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