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China-U.S. Trade Dispute Could Knock Oil Demand, Says IEA

13 Apr 2018 8:00 am
By Christopher Alessi 

LONDON--The world's robust appetite for oil could be significantly dented by the escalating trade dispute between the U.S. and China, the International Energy Agency warned Friday.

In its closely watched monthly oil market report, the IEA said it continued to expect global oil demand to grow by 1.5 million barrels a day in 2018, but cautioned that potential U.S. and Chinese trade tariffs posed a "downward risk" to the forecast.

The Trump administration's planned tariffs on Chinese imports and retaliatory measures announced by Beijing would weigh on the global economy, with "strong consequences for oil demand," the agency said. The IEA estimated that a reduction of 1% in world gross domestic product growth would reduce oil demand growth by around 690,000 barrels a day.

"Oil demand would suffer the direct impact of lower bunker consumption and lower inland transportation of traded goods, reducing fuel oil and diesel use," the report noted.

The IEA, a Paris-based organization that advises governments and corporations on energy trends, raised its forecast in March for global oil demand, saying it would reach 99.3 million barrels a day in 2018 and help keep the market in balance by partly offsetting a surge in U.S. shale production.

On Friday, the agency said that the world's oil supply fell in March by 120,000 barrels a day to 97.8 million barrels a day, mainly as a result of efforts led by the Organization of the Petroleum Exporting Countries to hold back crude production.

OPEC and 10 oil-producing nations outside the cartel, including Russia, have been holding back crude output by roughly 1.8 million barrels a day since the start of 2017. The agreement, part of a coordinated plan to rein in a supply glut that has weighed on oil prices for over three years, is set to expire at the end of 2018.

The OPEC-led deal helped boost crude prices by more than 50% in the second half of 2017. Prices have also been bolstered by rising geopolitical risk to supply--particularly in the Middle East--reaching three-year highs this week. Brent crude, the global benchmark, closed at $72.02 a barrel Thursday.

However, it "remains to be seen if recently elevated prices are sustained," the IEA said Friday.

Higher prices have incentivized U.S. shale oil producers to ramp up production over the past year. While global oil supply was down on-the-month in March, it was up 1.34 million barrels a day from the same time a year ago, largely due to U.S. output, according to the IEA. The steady uptick in U.S. crude production could weigh on prices again, as it did when the oil market crashed in late 2014, analysts have cautioned.

The IEA said that commercial oil inventories in the Organization for Economic Cooperation and Development--a group of industrialized, oil-consuming nations that includes the U.S.--declined by 25.6 million barrels in February to 2.841 billion barrels, the lowest level since April 2015. Oil stocks at the end of February stood at just 30 million barrels above OPEC's target of the last five-year average.

Write to Christopher Alessi at christopher.alessi@wsj.com
 

(END) Dow Jones Newswires

April 13, 2018 04:00 ET (08:00 GMT)

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