On Tuesday, oil markets made strong gains of over 1 percent as trade tensions between the U.S. and China eased.
What does this mean?
Easing of tensions
Easing of tensions will signal a halt to further damage of the global economies, which previously saw markets tumble over jitters of a potential trade war.
Brent crude futures gained 1.4 percent or 06 cents at $69.62 per barrel.
U.S. West Texas Instruments crude futures rose 1.4 percent or 89 cents at $64.31 a barrel.
China Lowers Taxes
The news that Chinese President Xi Jinping has conceded to lowering taxes on imports of U. S. imports which includes automobiles saw stock markets rally on Tuesday.
Director of energy consultancy Trifecta, who are based in Mumbai, India and focus on oil markets, Sukrit Vijayakar said that the easing of tensions of any escalation in a trade war between China and the U.S. has seen crude oil price rise.
The increase in the price of crude, saw frenzied buying leading to volatile trading. This was the largest single day gain since September which was helped by the fall in the U.S. dollar, the lowest in 2 weeks.
There was no dampening of bullish sentiment by investors even after the API released their data of a build-up of 1.8 million barrels of crude contrary to the prediction by analysts of a smaller draw.
Possibility of Sanctions – Cause for Concern
Right now, oil markets are concerned whether the U.S. administration will impose sanctions on some major oil producers.
JPMorgan bank in U.S. said in a report that there is a risk that the Trump administration will impose sanctions on Iran, Russia and Venezuela who are key oil exporting countries.
U.S. Shale Production Soars
U.S. oil production has overtaken the world’s second largest crude producer, Saudi Arabia threatening the efforts by OPEC to cut production in an attempt to prop up prices.
U.S. crude production has risen to 10.46 million barrels per day with Russia at almost 11 million bpd.
Asia Notified of Price Increases
In an unexpected move, Saudi Arabia oil refinery Saudi Aramco has raised prices of crude oil to Asia according to news reports.
Plan to Buy From Alternative Sources
In a quick response on Monday an official in China said that several Chinese and Asian refiners plan to cut back volumes of cargo imports from the Royal Kingdom with China’s largest refiner, Sinopec starting cutbacks in May of 40 percent.
JPMorgan forecasts that in 2018 Brent and WTI prices will range between $69.50 and $65.20 a barrel and in 2019 Brent and WTI will be between $64 and $58.50 per barrel respectively.
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