US trade war and sanctions are not helping oil markets

The U.S. trade war against China and sanctions regime is contributing to instability in the global oil market and putting pressure on prices, Russian Energy Minister Alexander Novak told.

"We can see that the pricing situation today depends not just on the supply/demand balance or the general economic situation but also on the uncertainty that we observe today in the global markets: the trade wars, the sanctions that the U.S. pursue," Novak said, speaking at the Eastern Economic Forum (EEF) in Vladivostok, Russia.

Novak said geopolitical uncertainties such as the U.S.' decision to impose a massive package of tariffs on Chinese imports, as well as its sanctions on Russia and those coming up on Iran, could prompt oil prices to rise modestly.

"If we talk figures, I think that the additional premium is about $5-6 on top of the usual oil price, that would reflect the supply/demand balance," he said.

Novak's comments come as oil market focus shifts away from a successful 2016 deal between OPEC and Russia (and other non-OPEC producers) to curb output in order to support prices, to current threats to the global oil supply.

Forthcoming U.S. sanctions on Iran's oil sector, coming into effect in November, are seen as the biggest disruptive force with oil market analysts predicting that Iran's daily production could fall by as much as 1.5 million barrels a day.

Novak's prediction that $5-$6 could be added to the price of a barrel of oil is conservative with many oil market watchers predicting prices per barrel could rise to $90 or even $100 per barrel, particularly when sanctions against Iran take hold.

Iran supply, China demand
Aside from Iran, the global oil supply could also be vulnerable to economic and political turmoil, and accompanying supply disruptions, in other major oil producing countries, namely Venezuela, Iraq, Nigeria and Libya.

There are also concerns that tariffs on Chinese imports will damage China's economy and could dampen its appetite for oil. Novak said there would always be consumers to fill the void, however.

"I think that the oil sector today is global. When we are talking about the supply/demand balance, we think globally," he said.

With sanctions looming on Iran, Saudi Arabia, OPEC's de facto leader, and Russia have pledged to step in to the breach and pump more oil (much to the consternation of Iran, which has said no other OPEC can take over its share of oil exports) but how much spare capacity producers have, should supplies be affected beyond Iran, is uncertain.

Speaking on Tuesday at the EEF, Novak said that despite the Vienna accord helping the oil market to overcome a price slump crisis, the market is still "fragile" due to production declines in some countries, including Venezuela, Reuters reported. He added the market was still being influenced by geopolitical issues, such as uncertainty over Iran.

Source: CNBC

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