Oil Set For Worst Week For 2019; Gold Still Below 1300

May 24, 2019

London (May 24)  Crude oil is back in green, trading 1.19 percent higher after the price plunged nearly 5.7 percent yesterday. Clearly, bargain hunters are back in town. However, it is on track to record the worst week of the year (as shown in the chart below), and this is due to the increase in trade war tensions between the US and China. Investors are concerned that the dispute is going to leave a major dent on the oil demand, after all, we are talking about the two biggest economies of the world. If the business cycle starts to slow down, it is going to have a huge impact on oil demand and the fact is that the spillover effect of the business cycle in these countries also has an impact around the world.

The recent strength in oil price was mainly due to the concerns over supply because Donald Trump decided to pick a fight with the Republic of Iran. As, if the Middle East isn’t already sensitive enough. Sanctions on Iran triggered a huge surge in the oil price. There is no doubt in saying that investors have become more sensitive to Donald Trump’ tweets. They have large implications across multiple assets.

The oil price also got a tailwind because of the sanctions on Venezuela and the disruption in oil production from Russia to Nigeria. For now, these disruptions on oil supply have failed to triumph the pessimism in the market.

The surge in the oil price which we are experiencing today may not last forever if the trade issues continue to escalate. Yes, there is no harm in saying that the oil industry has been resilient to the trade war issues for a long time because it is not that the trade war started only this week but the reason that investors didn’t pay too much attention to the dispute was mainly due to the concerns over the supply disruptions and a belief that the trade war would not last this long. Donald Trump has softened some of his stance today towards China, but we are nowhere near to where we need to be.


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