Merill Lynch, from the Bank of America warned on August 2nd that the prices of crude oil may fall. If China buys Iranian energy exports, then the prices can fall as low as $30. Also the bank expects Brent crude oil to average $60 per barrel in 2020.
US can get deeply affected by this drop. And as a result, the US energy sector will suffer. Energy stocks like Denbury Resources will experience the brunt of the drop.
As per Bank of America Merill Lynch, the equity indexes such as the S & P Index will get impacted by the plunge in crude oil prices. Also the S&P 500 has 5% exposure to energy stocks.
President Trump brought $300 billion worth of Chinese goods on 1st August, under a 10% tariff starting in September. Now that led to a depreciation of the Yuan. And this led to an accusation by US that China retaliated by devaluing its currency.
China also promised to respond to US, if it plans to install mid-range missiles in the Asia-Pacific Region. And China also thinks that US is responsible for the unrest in Hong Kong. But the Secretary of State Mile Pompeo denied the accusation.
After US, China is the second largest consumer of oil. This makes China the largest buyer of Iranian oil. And the country’s economy depends on oil, but if China steals it then the economy will collapse.
Iran is also having trouble selling the oil. And it’s a perfect opportunity for China to negotiate with it. In the recent news there was a mention of Iranian oil tankers floating at the Chinese ports. But China stepped in and is now keeping the oil in bonded storage.
Even though the tensions between China and US keep increasing, China has done nothing to violate US Sanctions. The oil prices hinge on China’s decision of making a deal with Iran.
Image credits – Mike Mozart