The oil price falls overnight, and quite unexpectedly. From last night’s $34, WTI oil currently falls to $31.63. There are solid reasons for this! Only yesterday, in the course of our reporting on the ever-increasing oil price, we asked whether there were no longer any reasons for a sudden price drop. We mentioned possible risks, including the escalation in the trade war between China and the USA.
Oil price falls due to news from China
First of all, there is the recent statement from the Chinese People’s Congress, where the government in Beijing, for the first time since 1990, has not set a target for the growth rate of the domestic economy. This of course fuels the fear of continued weak growth after the end of the corona crisis in China. This suggests less demand for oil, which is negative for the price of oil. And on top of this (much attention has also been paid in the US media), the Chinese government is apparently planning to take tougher action in Hong Kong. According to reports, Beijing wants to introduce a new, stricter security law for Hong Kong. You can read the current our article by clicking here.
The new law is said to ban secession, foreign influence, terrorism and all insurrectionary activities aimed at overthrowing the government in Beijing. Well, will such a law make it possible to criminalise virtually all democratic activities in Hong Kong in future? The Hong Kong stock index is down 5% today. This should give a boost to Donald Trump’s recent threats to China. In addition to his corona criticism of China in connection with the corona crisis, Donald Trump could now also position himself as an advocate of freedom (Republicans are putting pressure on). More dispute between the USA and China, fear of new tariffs. This also puts pressure on the price of oil. And so it slides down this morning.
After a $14 gain in oil prices in just a few days, such news from China is certainly a welcome occasion for speculators to smooth out their sensational gains of the past few days. This could put further pressure on oil prices today as the day goes on. It should also be noted that Monday is Memorial Day in the USA. So the Americans are facing a long weekend. And is that why all the more traders want to secure long profits today? Aside from today’s trading, it is important to remember that oil inventories in the U.S. have recently been surprisingly lower for the second consecutive week. Further setbacks in the oil price after the sensational gains of the past few days are indeed conceivable. But it is quite possible that after a pause, the upward trend will regain the upper hand. Another positive factor for the oil bulls at the moment is that statements from Russia indicate that production there could take a long time to reach the volume seen before the corona crisis.