Crude Oil Continues to Suffer at the Hands of the Trade War

Alan Penny

21 November 2019

3 min read

China stock market

  • Headlines all over the place with China-US trade
  • Energy demand under scrutiny
  • US output continues to strengthen

Crude oil markets have been very choppy lately, and this makes sense as there are a lot of moving pieces right now. Headlines seem to cross the wire every 24 hours or so that will directly contradict the previous one.

In this type of environment, a lot of people are cautious about putting money into the marketplace. This results in the sideways grind that the crude oil markets have been in for some time.

Beyond that, crude oil markets have a tendency to move in $10 increments, which is exactly what we are seeing in both the West Texas Intermediate Crude market and Brent.

China-US trade war

The situation between the United States and China seems to be getting contentious at times, but occasionally there will be positive headlines or at least inferences of positive outlooks.

For example, just 24 hours ago, Liu He suggested that he is “cautiously optimistic” about reaching the so-called “Phase 1 deal”. This is crucial considering there were also negative headlines involving the two nations lately. These saw the Chinese express anger about the United States Congress passing a resolution backing the Hong Kong protests and warning Beijing not to act with violence.

paralyzing traders from putting on longer-term trades based on the possibility of demand

That being said, there are a lot of concerns about the next headline, essentially paralyzing traders from putting on longer-term trades based upon the possibility of demand.

The demand will be highly influenced by whether or not the Chinese are sending as many exports around the world, but it should be noted that the China-US trade war is only part of the problem. There are much bigger issues out there that a lot of people aren’t paying attention to.

Global uncertainty

The biggest issue isn’t just the ongoing trade war, although it certainly is exacerbating underlying problems and capturing most of the headlines.

The market continues to deal with the idea of slowing economic conditions in places like the European Union and the United Kingdom. The United States is still showing signs of strength, but it has certainly been slowing down over the last six months. Because of this, the concerns around the crude oil markets will continue.

At the same time, there are murmurs of OPEC perhaps looking to cut production. The organization is in a bit of a pickle at the moment, because the United States is now starting to produce over 12 million barrels a day.

This doesn’t take Canada into account either, and as time passes, OPEC is starting to lose its grip on the market. Currently, most OPEC countries are finding a larger customer in China, but with the Chinese economy slowing down, that puts significant downward pressure on the markets.

Essentially, there’s a big possibility that crude oil markets will continue to be very choppy. Of course, they will suffer at the hands of the China-US trade war and its headlines.

Written By
Alan Penny

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