Escalating US – China Tensions Could Cap Gains
The end of the week weakness is being generated by profit-taking ahead of the long U.S. holiday weekend and escalating tensions between the United States and China. Some traders are also expressing concerns over the pace of demand recovery from the coronavirus crisis, but this is likely to become more of an issue next week once traders get data on U.S. Memorial Day holiday travel.
Prices reversed to the downside early Friday as the tensions between the U.S. and China centered on the former’s imposition of a new national security law on Hong Kong after months of anti-government protests in the Chinese-ruled city. Tensions between Beijing and Washington have risen in recent days, over issues such as the coronavirus pandemic as well as a bill that was passed which could force Chinese firms to delist on U.S. exchanges.
Adding to uncertainties, China refrained from setting a 2020 GDP growth target and pledged to step up spending and financing to support its economy, the first time that the Asian country did not set a gross domestic product (GDP) goal since 1990 when the government started to publish such targets, according to Reuters.
Baker Hughes Reports 10th Weekly Decline in US Oil-Rig Count
On Friday, U.S. Energy Services firm Baker Hughes reported that the number of active U.S. rigs drilling for oil dropped by 21 to 237 the week-ending May 22. The oil-rig count has now fallen for 10 weeks in a row, implying upcoming declines in domestic crude output. The total active U.S. rig count, meanwhile, also fell by 21 to 318, according to Baker Hughes.
This news is enough to underpin prices, but may not be enough to overcome the coronavirus demand destruction and rising tensions between China and the United States.
Weekly Forecast
Last week’s supply and demand data indicates that supply is being managed through compliance among OPEC+ members as well as U.S. production cuts. Demand is recovering in North Asia, particularly China, based on recent reports. And as Europe and the U.S. start to open up their economies, the demand should improve in those regions also.
However, the new wildcard is escalating U.S.-China tensions. At this time, the U.S. is challenging China on three fronts – coronavirus blame, stock market delisting for government controlled corporations and the threat of new tariffs if China interferes with Hong Kong’s government.
If the tensions between the two economic powerhouses continue to worsen over the near-term, then this could raise enough uncertainty to encourage crude oil traders to book profits and take to the sidelines on fresh worries over future demand.
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May 25, 2020 at 02:28AM
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Oil Price Fundamental Weekly Forecast - Simmering US-China Tensions Emerge as Issue that Could Cap Gains - FX Empire
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