There Could be Another Oil Supply Shock on the Way

Deepening rifts between the U.S. and China could do a good deal of damage to oil prices.

Already, the excessive back and forth has sent prices lower on fears of a severe economic slowdown, or even a recession.  In fact, oil demand could get worse from here, as businesses and people – hit with rising prices – cut back on their energy use.

Two, we’re seeing signs of a potential supply glut, as oil exports from the U.S just surged by 260,000 barrels per day (bpd) in June to a monthly record of 3.16 million bpd.

Three, there are fears China could retaliate and buy oil from Iran.

China could retaliate and undermine President Trump’s Iranian policy.

In fact, Bank of America Merrill Lynch is warning that China could again retaliate by buying large amounts of oil from Iran.  “A Chinese decision to reinitiate Iran crude purchases could send oil prices into a tailspin,” Bank of America said, as quoted by CNN.

Should this happen, the analysts warn crude oil prices could sink by as much as $30 a barrel.  

Remember, Iranian oil exports have plummeted, as most countries comply with sanctions. This has also forced two million barrels of oil per day out of the energy market.  However, China could potentially import up to 1.5 million barrels a day, notes Barron’s – a move that would upend energy markets quickly.

That would easily flood the oil market, and send price screaming lower.

At the moment, crude oil prices trade at $54.48 a barrel.