How Has the Trade War Affected Oil Prices?

From taxing billions of dollars worth of Chinese goods to slapping tariffs on Canadian lumber, experts warn that Trump's "trade wars" pose a serious threat to the global economy. The oil industry won't emerge unscathed, with rising tensions with China set to send crude prices soaring.

The commodity had a positive start to 2018, climbing to over US$80 a barrel for the first time in almost four years. The recovery was helped by OPEC's decision to extend oil production quota limits until the end of the year, which triggered a global price rise.

Trump slams tariffs on Chinese goods

Now, the stability of crude oil is once again in flux, with the escalating trade war between the US and China blamed for the volatility. Following the implementation of American tariffs on US$34 billion worth of Chinese imports in July, oil prices have experienced a steady decline. The slump was heightened by a second round of US$16 billion in August, coupled with threats from Trump to impose an additional US$200 billion.

China has hit back with a fierce tariff plan targeting goods imported from the US, with the "war" set to escalate over the coming months. Experts are predicting it could cause a major slowdown in the Chinese market, which would in turn affect the global oil market.

Slowing Chinese economy set to hinder global oil market

Consuming a huge 11.5 million barrels of oil a day, China is the second biggest oil consumer on the planet. Analysts warn that a downturn in the national economy could impact demand for crude and trigger a global oil price crash.

"One way or the other, they have to do something. Otherwise the Chinese economy is going to tumble," warns Bo Zhuang, Chief China economist at TS Lombard, an investment research firm.

The aftermath of the trade war is already being felt, with crude oil prices slipping from US$79 a barrel to US$73 a barrel after China implemented its retaliatory tariffs, representing a drop of almost 7%. If the tit-for-tat scenario continues, experts forecast oil could drop to as low as US$66 per barrel by the end of 2018.

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