According to Bank of America Merrill Lynch, crude oil prices could drop by as much as $30 a barrel if China chooses to purchase Iranian crude oil in retaliation for the recent U.S. tariff policies..
The Chinese Trade Ministry threatened countermeasures after President Donald Trump threatened to slap a 10% tariff on Chinese products worth $300 billion. Thursday’s decision flourished petroleum markets and sent an 8 percent crude plunge — most in four years.
Analysts warn that “oil volatility is set to increase again” as markets wait for a reaction from China to the recent US tariff threat, including buying Iranian oil.
“This decision would both undermine US foreign policy and mitigate the adverse trade-related impacts of increasing US tariffs on the Chinese economy,” added the study.
According to information from S&P Global Platts, Iranian petroleum shipments dropped below 550,000 b / d (barrels per day) in June from around 875,000 b / d in May and around 2,5 million b / d in June 2018. According to the company, approximately half of Iran’s exports were transported to China in June and July.
But, according to other analysts, a Chinese choice to buy Iranian oil in further defiance of U.S. sanctions might function as a double-edged sword.
“Iran would welcome any opportunity to increase its production whether or not it breaches the terms of the U.S. sanctions, but the strategy would introduce China to a partner over whom it has no enormous control,” Edward Bell, Emirates NBD’s Commodities Research Director told CNBC’s “Capital Connection.”
“Don’t forget that there are other producers who would also target trade with China, so you could see Iraq or Saudi Arabia, for example, step in and attempt to discount the quantities they would export to China as a manner of circumventing Iran’s additional market share,” he added.
Crude oil prices continued to fall on Monday as traders concentrated on a worsening outlook for demand.
BofA analysts Merrill Lynch said the recent round of U.S. tariffs could decrease worldwide demand for oil by 250,000-500,000 barrels a day, adding to concerns about a slowdown in demand that challenges the fundamentals of crude oil.
“The kind of decline in the amounts of global trade we saw this year leads mathematically to lower demand for crude oil,” added Bell.
“If that continues through the end of 2019 or perhaps even 2020 as we join the strong end of the US election cycle when Trump is likely to want to keep that tough position on China, then it could be a very challenging obstacle for crude to attempt to break through some of those demand issues.” Brent crude traded at $60.94 early Monday, down about 1.5%, while WTI traded at $54.81, again.