Trade war: Oil prices drop by 19% since April-end

The oil prices in the global markets are seeing continuous dip since April-end despite fall in the production, on the back of trade war between US and China.

The benchmark Brent crude, at the time of filing this copy, was trading at $60.77 a barrel, down 18.5% from $74.57 a barrel on April 24, 2019. This is the lowest Brent has touched since January this year

During this period, oil production has also come down despite the geopolitical risks. The US’s ending of sanctions waivers for some of Iran’s largest crude importers on May 2, as it vowed to bring Iranian exports down to “zero”, threatens to intensify global supply constraints amid the OPEC production cut agreement. Also, the probability of continued low or declining supplies among oil producers such as Venezuela (socio-economic strife and sanctions), Libya (civil-military conflict and amid a brink of breakdown), Canada (production restraint) and Russia (pipeline contamination) remains acute.

Analysts attribute the phenomenon to the drop in the demand, owing to the concerns emancipating out of the trade war. "The low demand has been weighing heavy on the oil prices in the recent past, as trade war escalates. Also, there are fears of a global recession. So demand is again subdued," an analyst said.

Oil prices had suffered their biggest one-day sell-off of the year on May 23, falling by 4.5% on a combination of trade worries and rising US inventories, both of which the market took to be bearish for oil demand.

The fall in the oil prices will is likely to reduce India's import bill along with a weaker dollar. In such a scenario, the Indian IT services company, which has seen the stress on their margins might see tepid results in the first quarter. However, on the brighter side, the prices of imported goods might come down.