How much impact will trade war have on oil prices?

Oil prices fell about 2 percent after US President Donald Trump threatened new tariffs on China, reigniting fears of a trade war between the world’s two largest economies that could hurt global growth. The US president said he had ordered US trade officials to consider tariffs on an extra $100 billion of imports from China, escalating tensions with Beijing.

Crude oil prices sank after each round of tariffs, and while there are real concerns about the ripple effects on demand and global economic growth, it is unclear whether or not the oil and gas relationship will be directly targeted in a major way.

Brent crude futures settled down $1.22 at $67.11 a barrel while US West Texas Intermediate (WTI) crude futures fell $1.48 to $62.06 a barrel, a 2.3 percent loss. Brent crude dropped 2.8 percent in the week while US crude fell 4.4 percent, the biggest weekly decline since early February.

The traditional supply-demand fundamental news was mixed. However, the main determinant of the direction appears to have been lower appetite for risky assets in response to worries over an escalating trade war between the United States and China. A combination of news events helped fuel a two-sided trade before the market turned decisively lower for the week.

However, crude oil prices lacked clear direction as markets balanced between declining US inventories and potential trade war fears. Markets in general have been influenced by fears of a trade war between the United States and China as both sides play with proposals of multibillion-dollar tariffs.

Jamie Dimon, CEO, JPMorgan Chase, warned that “anything that starts to resemble a trade war creates risk and uncertainty to the global economic system.”

China needs the energy. Also, oil and gas exports have succeeded in cutting the US trade deficit. Some analysts think US oil and gas exports to China are too important for both countries. But not everyone agrees.

“China can ditch American energy at any time because there is plenty of supplies elsewhere, whereas for the US, energy is a sensitive subject,” Will Yun, a commodities analyst at Hyundai Futures Corp. said.

“If China shows its willingness to impose tariffs on crude, it will send a shock wave through markets,” said Min Byungkyu, a global strategist at Yuanta Securities Co.

FRANK UZUEGBUNAM