Oil prices may dip by $30 on U.S., China trade war

THERE were fears on Monday that oil prices could take a significant hit and plunge by as much as between $20 and $30 a barrel.

The dip is in anticipation of China defying the latest United States (U.S.) tariff threat by ramping up imports of Iranian crude oil in open defiance of America’s sanctions on the Asian country.

Should this happen, oil prices would be in the neighbourhood of $30 per barrel, a development that may hurt Nigeria’s N8.83 trillion budget.

The budget has been predicated on estimated crude production of 2.3 million barrels a day; oil price of $60 per barrel and an exchange rate of N305 to a dollar.

The Bank of America (BofA) Merrill Lynch, which was quoted by CNBC, said in a note: “While we retain our $60 a barrel Brent forecast for next year, we admit that a Chinese decision to reinitiate Iran crude purchases could send oil prices into a tailspin.”

Early on Monday, WTI Crude was down 1.28 per cent at $54.95 and Brent Crude was down 1.24 per cent at $61.12, as the renewed trade war rekindled fears of slowing global oil demand growth.

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On July 1, oil prices took a heavy hit after President Donald Trump said that the U.S.-China trade talks would continue in September, while the “U.S. will start, on September 1, putting a small additional tariff of 10 per cent on the remaining $300 billion of goods and products coming from China into our country.”

China pledged to impose new “necessary countermeasures” to protect its interests after the latest tariff threat, saying Trump’s tariff announcement was “an irrational, irresponsible act,” according to Zhang Jun, the new Chinese ambassador to the United Nations, reported byReuters.

China’s reaction to the additional U.S. tariffs could include China resuming oil purchases from Iran to undermine the U.S. sanctions and cushion some effects on the Chinese economy from the new tariffs, BofA Merrill Lynch said.

Beijing has never actually stopped buying Iranian oil after the U.S. removed all sanction waivers for Iran’s customers in early May. China, the single largest buyer of Iranian crude oil before the U.S. sanctions hit the Islamic Republic’s oil exports, continues to import oil from Iran, despite the ‘zero exports’ maximum pressure campaign of the U.S. China has said that it wouldn’t comply with the U.S. sanctions on Iranian exports. Yet, Chinese oil imports from Iran are much lower than they were just a few months ago.

Last week, Iran called on China and other ‘friendly countries’, as it put it, to buy more crude oil from the Islamic Republic.