Less than a month into the New Year, the Middle East and North Africa (MENA) region has already experienced two geopolitical crises with the potential to rattle oil markets and ratchet up crude prices. Yet surprisingly, the impact of these events has been short-lived, says GlobalData, a leading data and analytics company.
In the aftermath of the assassination of Iranian Quds force General Qasem Soleimani in a US airstrike in Baghdad on 3 January, global benchmark Brent crude spiked by as much as 4.6% to reach a peak of $69.3 a barrel, the highest point since May 2019. Furthermore, on 20 January, Brent crude rose by a mere 1% during early trading, hitting $65.5 a barrel, due to Libya’s civil war threatening to disrupt the supply of around 800,000 barrels a day (b/d).
Indrajit Sen, Oil & Gas Editor at GlobalData, comments: “The oil market’s subdued reaction to these regional incidents, which caused only minor spikes to crude prices, indicates that the commodity market is being driven, now, more than ever, by perceptions around supply and demand.
“Pertinently, the world’s economy has been shaken by the ongoing US-China trade war, which has had a lasting and deeply unsettling global impact.
“The economic conflict between the world’s two largest economies, which began as a tariffs dispute in January 2018 and escalated into an all-out trade war, has significantly weakened global crude demand – to an extent that it will take time for demand to recover.”
Washington and Beijing signed a ‘phase one’ trade deal on 16 January. As part of the agreement, China will increase the value of energy imports by $52.4bn above 2017 levels over the next two years. While the phase one trade deal has been welcomed by the global economy as a necessary first step, it is likely to have a modest impact on the oil market.
The US-based Energy Information Administration (EIA) predicts that an estimated average global oil production of 102.37 million b/d in 2020 will continue to outstrip forecasted average consumption of 102.11 million b/d.
Weaker global crude consumption in 2020 is being largely attributed to the effects of the US-China trade dispute.
Sen explains: “This could mean that despite the Opec+ alliance deepening their production cut agreement to 2.1 million b/d during the first quarter of 2020, Brent crude prices will not be lifted.
“While the Mena geopolitical situation, along with civil strife and political unrest in Iran, Iraq, Yemen, Syria, Lebanon and Libya, continues to pose a serious risk of supply disruptions, oil prices is displaying no more than knee-jerk reactions to specific security-related incidents.
“The task of stimulating the global economy, and thereby creating more demand for crude oil, falls primarily on the shoulders of the US and China. To prevent further slowdown, the two countries must do much more – and fast – to haul the world economy away from the brink of a recession.”