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Renewed Trade War Fears Cause Oil Prices to Slump

June 15, 2018 at 19:32 by Matt Jackson

The prospect of a trade war between China and the USA has reared its head once again, causing oil prices to slump on Friday. The rumblings of a fresh trade spat between the two nations has combined with the ongoing possibility of OPEC nations increasing supply levels and causing Brent crude to lose more than 3% in the day’s trading.

US President, Donald Trump, announced 25% tariffs on $50bn of Chinese goods. The Chinese have threatened to respond with similar tariffs on US goods. This isn’t the first instance of a trade spat between the two countries. The market has viewed this as a negative move, especially as it adds to the ongoing trade dispute that has emerged between the USA and Europe, with the latter threatening to respond to the USA’s metal tariffs.

Also weighing on the mind of investors is the upcoming meeting of OPEC nations and Russia. The world’s biggest oil producers are set to meet on June 22, when they will discuss whether or not to continue restricting supply of oil to the global market. Although the likes of Saudi Arabia had agreed to cut production levels until the end of 2018, in order to push the price per barrel up, there has been growing evidence to suggest that they would increase their supply sooner than that.

US sanctions against Iran and Venezuela mean that supply from those nations will dry up. A US representative has been reported to have asked Saudi Arabia to increase their supplies, and they are reported to have increased output by 1 million barrels per day in June, but a growing list of OPEC nations have openly stated that they would oppose an end to the deal.

Russia are currently hosting the FIFA World Cup, and the hosts played Saudi Arabia during the first match. Saudi Crown Prince Mohammed bin Salman and Russian President, Vladimir Putin, were photographed bonding over the game. This relationship may have been the catalyst for the rumors that Saudi Arabia is planning on staging a summit for OPEC and non-OPEC leaders that are part of the supply cut pact.

The impact of heightened trade tensions between the USA and China caused WTI crude prices to fall 2.75% to $65.05 and led to Brent crude slipping 3.38% down to $73.37.

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