US-China trade war poses oil demand shock in 2019

SINGAPORE: US sanctions on Iran will tighten global oil supplies sharply until the end of the year, but a threat to world demand looms in 2019 from the U.S.-China trade war, the head of BP’s oil trading in Asia said.

“We’re moving into the tightest part of 2018 … the re-imposition of Iran sanctions is the main factor as the market will tighten substantially from now to year-end,” Janet Kong, chief executive of Integrated Supply and Trading Eastern Hemisphere at BP told Reuters.

Saudi Arabia and Russia won’t add significantly more oil to the market because of a lack of capacity, a top Iranian official said on Monday, predicting prices will probably rise further.

Sanctions on Venezuela are also exacerbating a production decline there, while outages in Nigeria and Libya have further crimped supplies, Kong said, with Brent LCOc1 supported at above $80 a barrel.

“The market fundamentals in the short term look very bullish and positive due to supply shocks, but over time, when supply catches up and the shock to demand becomes more evident, the market will go through another round of re-balancing next year,” she said.

The world’s two largest economies, China and the United States, have imposed tariffs on each other’s imports in an escalating trade war that has rattled global markets and raised concerns of a slowdown in world economies and commodities demand next year.

“Going into 2019, I worry about the impact of the U.S.-China trade war, manifesting itself slowly,” Kong said.

“The trade war impact has not really shown up in the data anywhere, but it will show up gradually over time. So the supply shock is very sharp and prompt, while the impact from trade war is boiling over slowly.”

Analysts and the International Monetary Fund have forecast a 0.5 percent to 1 percent drop in world gross domestic product growth next year, she said.

The International Energy Agency said in its monthly oil report that global oil demand is set to top 100 million bpd next year, although emerging market crises and trade disputes could dent this figure.

“The Trump administration wants intellectual property protection … reducing subsidies to Chinese SOEs (state-owned enterprises) and open market access by all businesses which are difficult, in my view, for the Chinese government to agree to,” Kong said.

“So it’s very likely this war will drag on for a long time.”