By Adedapo Adesanya
Major oil futures finished lower last week after hitting the highest since September earlier in the week due to heightened tensions in the Middle East that threatened to affect supply.
U.S. West Texas Intermediate and the international benchmark Brent crude oil as a result, lost more than $5 as there was no retaliation heavy enough to cause the market to panic.
According to market trends, prices are likely to see heightened volatility and overreactions to the upside if the tensions in the Middle East escalate, but that is highly unlikely especially with US President Donald Trump saying that he has no intentions of attacking, even using his Twitter account to call on the Iranian government to avoid any more abuse on its citizens. The US, on Friday, announced new sanctions against Iranian officials and its construction, manufacturing, textiles, and mining sectors
Prices are, however, on the path to holding steady this week on inputs such as the agreement by Organisation of the Petroleum Exporting Countries (OPEC) and its allies to cut production by 1.7 million barrels per day to hold a near-to-stable range. But if in any case there is a disruption in supply in the week and prices go up, the OPEC+ would then flood the market with the oil they have been holding back.
If prices rise, it wouldn’t take long for the US and some other non-OPEC countries to start producing at record levels. This may then lead to a rise in US crude inventories, which will definitely depress prices.
A major deal that would help prices this week is the hope of increased demand due to the US-China trade deal that is set to take place this week, precisely on Wednesday, January 15.
Under the deal, which was announced on December 13, 2019, US plans for new tariffs on $160 billion (£121 billion) of Chinese imports of items such as smartphones and toys would be suspended. In return, China will agree to buy more US farming products and make fresh commitments to improve intellectual property protections.
This is a great opportunity for oil prices to move ahead on a US-China dispute that has weighed heavily on the global economy. Both nations have imposed tariffs on each other’s goods, affecting global trade volumes and leading to weaker levels of business investment.
Over the course of the 18-month trade war, the US has imposed tariffs on about $360 billion worth of Chinese goods including electronics, clothing and toys, while China replied with its own batch of tariffs on more than $110 billion of US products including soya beans and aircraft.
But the signing of the deal will help calm tension between US and China and will stabilize oil prices.
