The gold standard of oil price and demand forecasts is the International Energy Agency’s oil markets report. In the one just issued, its experts commented that the trade war has dented demand and may do so more forcefully if the battle goes one. The only silver lining is that low oil prices tend to help the economy.

The IEA experts wrote, “… the US-China trade dispute remains unresolved and in September new tariffs are due to be imposed. Tension between the two has increased further this week, reflected in heavy falls for stock and commodity markets.” New tariffs on $300 billion of Chinese goods will be tacked on to current tariffs that the Trump administration has imposed.

The trade war may not end for months. The chief economist at Goldman Sachs expects it to go on until after the 2020 election. He assumes that the Federal Reserve will need to cut rates three times by then to steady the economy. In the meantime, no major trade talks between China and the United States are scheduled for weeks.

The IEA looked at the near-term future and the effects of the tension between the world’s two largest economies: “Oil demand growth estimates have already been cut back sharply: in 1H19, we saw an increase of only 0.6 mb/d [million barrels a day], with China the sole source of significant growth at 0.5 mb/d. Two other major markets, India and the United States, both saw demand rise by only 0.1 mb/d. For the OECD as a whole, demand has fallen for three successive quarters.”

The only major cut in production at the current moment is a slight reduction from OPEC. That will not affect prices much if the trade war saps demand further.

The IEA reported that it will hold its estimate of oil consumption at 100.4 mb/d for the balance of the year. However, “The outlook is fragile with a greater likelihood of a downward revision than an upward one.”

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