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Failing Trade Talks Could Send Oil To $30

Author:
Valentin Lazarov
Oil

The U.S. and China appear to be making progress on trade talks ahead of the G20 meeting, but should they fail, the fallout for the oil market could be significant.

If the U.S. and China cannot come to an agreement and the trade fight escalates, oil prices could plunge to $30 per barrel, according to Bank of America Merrill Lynch.

That is because the Trump administration has threatened to impose tariffs on $300 billion worth of Chinese imports, which would cover just about every Chinese good coming into the country. The economic pain on the global economy would be substantial, but the impact would be especially damaging on China. In response, Beijing might feel compelled to let the yuan weaken in an effort to prevent a collapse of exports.

That, in turn, would severely cut down on oil demand. Since crude is priced in dollars, a weaker yuan would make oil vastly more expensive in China.

Moreover, if the fragile U.S.-China trade talks fall apart, China would have little incentive to follow American directives. As a result, it may scoff at demands to cease purchasing oil from Iran. The combined effects of a weaker global economy, dwindling Chinese demand following a weakening of the currency, and Chinese imports keeping Iranian oil exports online would lead to a cratering of oil prices to $30 per barrel, Bank of America’s global head of commodities Francisco Blanch said in a Bloomberg interview.

Source: Oilprice.com

 

 

International Financial Markets Department

Euro-Finance Ltd.

forex@eurofinance.bg

www.eurofinance.bg 

*This material should not be considered as a recommendation for buying/selling securities.