Oil prices a question amid tensions
Push-pull from trade war with China, hostilities in Middle East
NEW YORK — A rare mix of geopolitical tensions in the Middle East and China is tugging oil prices in opposite directions and creating uncertainty over where they might land.
Deteriorating trade talks between the United States and China, the world’s two largest economies, are posing a threat to global economic growth, and whenever that growth sputters, demand for oil and gasoline typically craters.
But tensions in the Middle East and elsewhere could threaten oil supply, which could push the price of oil and gasoline higher. In the past week, the United Arab Emirates has alleged four oil tankers off its east coast were targeted in sabotage attacks. And Saudi Arabia has accused Iran of being behind a drone attack that shut down an oil pipeline in the kingdom.
Meanwhile, the U.S. has dispatched warships and bombers to the region to counter a possible threat from Iran, whose economy is reeling There have been signs that economic growth in China is slowing, which could mean less demand for oil from one of the world’s major consumers.
from President Donald Trump’s decision last year to withdraw the U.S. from the 2015 nuclear accord and impose sanctions.
“Tensions are high, and I think the chance of further escalation is probably pretty good as well,” said Ryan Fitzmaurice, energy strategist at Rabobank. “If any of these issues flare up, prices could increase sharply. … If you have a major attack on a Saudi production facility or Saudi tanker, we could see prices increase quite dramatically overnight.”
There already were concerns about constraints on oil supply. Last month, Trump decided to impose sanctions on nations that were importing oil from Iran, taking about 1 billion barrels of oil off the market by some estimates. Production in Venezuela, once one of the world’s largest oil producers, has collapsed to one-third of its historic output amid a political crisis.
Some observers of the oil industry are downplaying the supply risk. While they are concerned that oil production facilities in Saudi Arabia could be targets of attacks, the country has been strengthening its oil infrastructure, making those targets very hard to hit, said Kevin Book, managing director at Clearview Energy Partners.
“There are so many missing barrels right now that a real destructive act would have a tremendous upward price pressure on crude, and yet those real destructive acts are really difficult, too,” Book said.
While Middle East tensions could push oil and gasoline prices higher, the trade war with China could pull prices back down. Last week, the Trump administration more than doubled tariffs on $200 billion in Chinese imports and spelled out plans to target the $300 billion worth that are not already facing 25 percent taxes. The U.S. also labeled telecom equipment giant Huawei a security risk and imposed export curbs on U.S. technology sales to the
company. China retaliated by raising tariffs on $60 billion in U.S. imports.
There have been signs that economic growth in China is slowing, which could mean less demand for oil from one of the world’s major consumers. Last year, car sales in China fell 10 percent, and in March oil demand declined for the first time since 2014, said Jim Burkhard, vice president for oil markets at IHS Markit.
“The Chinese economy has been incredibly resilient,” Burkhard said. “Nonetheless, I know there are a few data points that raised some serious questions about the course of economic growth in China, and the U.S. trade dispute only adds to that concern. That’s what could drive prices lower.”
As for the impact on gasoline prices, the trajectory is hard to predict. When the driving season kicks into high gear for the summer, prices typically move with the temperatures: They rise. But given the conflicts around the globe, they could soar to unusual heights.