As surprising at it may sound, the drone attacks on Saudi Arabia’s two oil pumping stations following the attack on Saudi oil tankers in UAE have failed to boost crude oil prices as they would normally have with only a short-lived impact on prices after Saudi supply assurance. Instead, what has gained more prominence is the announcement of an unexpected increase in US crude oil inventories.

However, if one looks at the price trend, it can be seen that the oil prices have been on a gradual upward journey since the beginning of this year. Where supply issues that fizzled out due to rising US output in general have started surfacing again, tensions in the Middle East have been the reason for oil prices climbing slowly.

The most recent is the deployment of US military assets in the Middle East as US-Iran relations deteriorate. Besides that, crude oil prices have also been escalating due to supply cuts implemented by OPEC and Russia at the start of the year, and the continuing US sanctions on Venezuela.

In its latest monthly Short-Term Energy Outlook, the US Energy Information Administration (EIA) has revised up its estimates from crude oil for 2019 close and 2020 based on tighter global supply by mid-2019 along with increasing supply disruptions globally; these are likely to come from decrease in Iranian crude oil production and exports.

The International Energy Agency (IEA) too in its monthly oil market report has highlighted of looming uncertainty about global crude oil supplies – particularly declining supplies from Iran, Venezuela and Libya.

However, what could cut short this gradual increasing trend in oil prices is the ongoing US-China trade war. The US-China trade war has been spiraling out of control, and more tariffs have been imposed by each on each side recently where the cooling off of the trade war is nowhere in sight.

This has also resulted in decline in crude oil prices in the last few days. Essentially, the trade war between US and China – two of the biggest economies in the world – is anticipated to have an impact on US oil demand, and as such it has had a negative impact on the oil prices.

Copyright Business Recorder, 2019

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