Crude oil prices rally amid hopes of an end to US-China trade war

Crude oil prices rally amid hopes of an end to US-China trade war
Published: 15 July 2019 - 9:45 a.m.
By: Logistics Middle East Staff

Hope is growing that crude oil values are set to stabilize in the coming weeks given that U.S. and Chinese officials have confirmed that trade talks are now firmly back on the table. It’s welcome news in the Middle East given rising tensions after last month’s tanker attacks.

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U.S. President, Donald Trump tweeted that he had a “very good telephone conversation” with President Xi of the People’s Republic of China. President Trump confirmed that the pair would have “an extended meeting” with their respective teams in a bid to thrash out a long-term solution to the ongoing trade war that’s threatened to boil over into the Middle East.

Saudis move to balance crude oil markets

In June, Saudi Arabia sought to provide much-needed reassurance that OPEC will maintain global crude oil markets in balance following a 16% sell-off in oil in May. Worries have escalated in recent months that the US-China trade war would curb fuel demand. However, Saudi Energy Minister, Khalid Al-Falih labelled the latest volatility in crude oil prices “unwarranted” given that OPEC and its allies in Russia would be taking action to stabilize the market toward the end of this year.

Some analysts have argued that the trade war is not the main cause of uncertainty surrounding crude oil, with the growth picture as a whole a greater cause for concern. Daniel Lacalle, best-selling author, believes issues with commodities such as crude oil exist due to an incorrect diagnosis of the economy. As governments and Central Banks believe it to be an issue with demand, they subsequently increase interest rates and liquidity to artificially inflate demand again.

The consequences of another trade talk breakdown for the Middle East

However, should those renewed talks between the US and China break down again, Morgan Stanley has already predicted a global recession within the next nine months if the U.S. continues its proposals to apply 25% tariffs on up to $300 billion worth of Chinese exports and China opts to retaliate and follow suit. The Washington Institute, which seeks to improve the quality of U.S-Middle East trade policy, believes the Middle East would then be stuck between a rock and a hard place. It would subsequently have to take a side or risk their bilateral economic relations declining between both the U.S. and China.

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The Middle East would have to choose a side primarily based on trade and investment grounds. Whether it’s on raw materials, military weapons or digital technology, the Middle East could face intense pressure to make big decisions in these areas. Particularly if either side became fixated on dominating the global export market and closing the other party off entirely.

The pressure may indeed force one side to buckle in the ongoing trade dispute. Especially because China’s exports and imports declined in June by almost 2% year-on-year. Furthermore, China is also experiencing waning domestic demands for goods and services from overseas, with a 29.9% fall on imports during H1 2019. The lack of growth momentum in China will have been at the forefront of President Xi’s thinking when reigniting trade talks with the U.S. at Japan’s G20 summit in Osaka late last month.

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