Oil prices dropped by 7% – China-US relations stress crude

Oil prices dropped by 7% – China-US relations stress crude

The persistent concerns about a flare-up in tensions between China and the US caused a drop in oil prices.

WTI crude for June delivery on the NME traded $1.41, or 7% lower, at 18.37% a barrel. According to Dow Jones Market Data, the price logged a 16.8% weekly rise. 

Worries of possible revenge from the US for China’s handling of the Coronavirus outbreak could add to distress for crude at the worst possible time. US-China

Stephan Innes, the chief global market strategist at AxiCorp, stated that the resumption of the trade war would harm oil prices over the long term. 

President Donald Trump’s administration received criticism over its handling the crisis Coronavirus outbreak caused. Trump tried to shift the blame to China.

US Secretary of the state, Mike Pompeo, made an accusatory statement. He said he had seen enormous evidence that the virus originated in a Chinese laboratory in Wuhan. President Donald Trump believes that China made a terrible mistake, and it didn’t want to admit it. 

China has repeatedly pushed back on US accusations that the Coronavirus outbreak was China’s fault. 

The antagonisms threaten to undo the truce in a trade war between the US and China. They struck the deal just before Beijing began shutting much of its economy down in late January. This was done to fight the pandemic. The associated press claims that Chinese leaders deliberately concealed the severity of the epidemic from the world in early January.

Jingui Pan of Ig stated that the renewed possibility of the return of the trade war that disturbed markets since at least 2017 once again weighed on market sentiment.

Factors that cause volatility in oil prices

Oil has fallen prey to unusual price volatility throughout its history. In fact, the reason for such a scenario is the result of the combination of several specific and intrinsic factors of this raw material. Jose Antonio Perez, head of training at the BME Institute, explains these factors and how they affect prices.

The first of the factors that mark the evolution of crude oil differently compared to other raw materials is in the way its supply is built. Perez says that it is a very peculiar market. This is since the OPEC countries are the ones that modulate the world supply. It does not form naturally but is somewhat distorted.

On the demand side, the expert from the BME Institute states that the current situation is exceptional. He further remarks that traveling restrictions and the increase in public spending that the economies have to face amid the Coronavirus outbreak weakens oil consumption worldwide.

The evolution of the crude oil price depends on economic activity. Perez says that there are many comments about new forms of energy. Still, economies are dependent on oil, however, to a lesser extent than before. 

Perez also points out that the impact of the evolution of crude oil on the stock market is very brief. However, he points out that the effect is more prolonged and profound in the sectors most linked to this raw material. This includes airlines and the oil and refinery companies themselves.

 

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