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Trade Fears Halt Petroleum’s Momentum

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For decades, the world hasn’t had to concern itself, generally, with bilateral or multilateral disputes over commerce and trade. Well established mechanisms for resolution of trade irritants between nations, whether through the World Trade Organization, the U.S. Commerce Department, or provisions for settlement and resolution under NAFTA (North American Free Trade Agreement), have left economically damaging trade disagreements to formal and reliable commercial arbitration. While not without difficulty, these mechanisms for trade resolution have had an excellent track record at averting economically destabilizing trade wars.

Growing unease over unfair trade is not new but the recent move and response by the U.S. to threaten the imposition of tariffs on steel and aluminum, as well as target 1,300 Chinese hi-tech products to a 25% tariff (or approximately $50 billion worth of imports), strikes a tone that one hopes isn’t more than brinkmanship and posturing. Naturally, the Chinese have threatened retaliation of some 106 products, including soybeans and main staple agricultural exports, with a tit-for-tat 25% levy. As such, for nervous onlookers, the prospect of a trade war between the world’s two largest economies is nothing to ignore and from an energy standpoint, the risk of a disrupted trade system will mean less demand for fuel products, among many other considerations. This most likely explains the halt in oil’s upward momentum over the last several weeks, but it is, by all accounts, a stretch and overreaction.

Beyond crude oil and petroleum products demand being altered in an unlikely scenario of a trade war between the U.S. and China, the fact remains that what demand is potentially lost in one trade relationship, would be developed in another. China would still need to meet its needs for soybeans from another country, while the U.S. would need to seek other regions to make up for imports of hi-tech products from China. In other words, demand for fuel would be displaced, not replaced.

Trade jitters aside, the politics of commercial saber-rattling seems to have sidelined for some, the current realities of the global standing of oil and petroleum products. While supplies of crude continue to diminish to meet demand, the gradual and sustained rise in fuel consumption can’t be as easily dismissed, despite threats of trade actions used as a blunt tool to get countries to address, talk and resolve, long-standing irritants to commercial exchange.

It may be the art of the deal but it has little to do with oil fundamentals.

Senior Petroleum Analyst, Canada

Dan is a skilled and noted bilingual (French and English) consumer advocate specializing in energy and current affairs. Known as Canada's “Gas Guru,” he founded tomorrowsgaspricetoday.com to better help motorists anticipate the price of gasoline in advance across Canada. He has over three decades of experience in the petroleum industry, as a parliamentarian and an analyst.