Just at the time the oil market is struggling to break out, it could have done with out it. The Trump administration enacts legislation which targets China's Human Rights record and its handling of democracy protestors in Hong Kong.
The legislation not only backs protestors, it encourages protest. This act will put the Trump Administration further into dispute with the Peoples Republic, an act the Chinese authorities see as an unwarranted intrusion into their internal affairs. Trump has described the Hong Kong protests as linked to the trade deal his administration has been negotiating with Beijing and voiced a desire to balance those two interests. A furious China has lashed out in response warning the US of the dark and dire consequences of such legislation. The counter measures they said they would take in retaliation would be firm. Chinese Vice Foreign Minister Le Yucheng summoned U.S. Ambassador to China, Terry Branstad to demand that Washington stop meddling in Beijing's domestic affairs. Quite how any sort of trade negotiations can take place in such a toxic environment remains to be seen.
Much has been made of the two protagonists establishing an interim phase one agreement. That in all reality might be loosely interpreted as a return to the position from which they started negotiations, a sort of cease fire where either country can bank their supposed gains, the relatively easy stuff.
Oil prices fell for a second day on today (Thursday) on a combination of the passing of the bill and official data showed US crude and petrol stocks rose. Brent crude was down 19c, or 0.3%, at $63.87 a barrel by 8.54am GMT, having dropped 0.3% on Wednesday. West Texas Intermediate (WTI) crude fell 33c, or 0.6%, to $57.78, after losing 0.5% in the previous session. The market is nervously watching developments between beijing and Washington. There is a distinct possibility of an imminent sell off as the much anticipated 'Phase One' deal not only fails to materialise but tensions create a breakdown in negotiations.
Alot will depend what happens with OPEC and allies including Russia, a group known as OPEC+, which have imposed quotas on members in an attempt to support prices. Whilst many analysts predict OPEC extending their production cuts, it is hard to see How members would favour ceding additional marketshare by making deeper cuts. Especially at a time when shale is now producing over 12.9 million bpd. It will be interesting to see how the Saudis and the Russians balance their domestic agenda against those of global demand. OPEC's 2020 demand growth forecast has been downgrade a number of times and currently provides a bleak future for producers in a market oversupplied with oil.
Fatih Birol, the Executive Director of the International Energy Agency (IEA), when speaking to Reuters remarked "Strong oil supplygrowth from non-OPEC countries puts a lot of pressure on OPEC and its Russia-led partners to act, and they will hopefully make the right decision for themselves and for the still ‘very fragile’ global economy...
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