‘In suspense’ and ‘caution’

Meetings that do not materialize well seem to be the target of the ‘subtle’ pressure strategy of the administration of U.S. President Donald Trump, who while scheduling them, decrees to include more Chinese companies in a trade blacklist. For those who are deluding themselves, he later adds that a quick agreement is “unlikely.”.

[prefix_blockquote align=»right»]These are the expressions that perhaps best describe, for now, the situation of the global economy and investors due to the complex trade negotiations between the United States and China.[/prefix_blockquote]In this dynamic, which for some analysts is chilling, attention automatically turns to the impact on oil prices, which surged due to the crisis from the recent attacks on Saudi Arabian facilities, but with the regular news about the trade war between the two giants, returned to a troubling low.

The protests in Iraq and the political crisis in Ecuador - precisely due to President Lenín Moreno's attempt to eliminate subsidies for hydrocarbons - among others, somewhat alleviated the downturn, which did not lift the spirits of the sector.

In the Ecuadorian case, which will leave the Organization of the Petroleum Exporting Countries (OPEC) next year, the protests reduced pumping by 59,450 barrels per day, according to figures from the Ministry of Energy of that country.

“It is impossible to predict the outcome of the talks (China-U.S.). Everything seems possible: from a partial agreement to another truce or even a complete breakdown of the negotiations. The spectrum of potential price reactions is correspondingly large,” explained Carsten Fritsch, an analyst at Commerzbank.

Another factor of international policy that could impact crude prices upward is the Turkish offensive against Kurdish targets in Syria, that much-discussed “betrayal” by Trump that could give a different dynamic to the civil war in this nation, and that will undoubtedly hit production in Kurdistan and, in turn, provoke a refugee crisis in the region. One more.
The natural reaction of the markets to bad news regarding the trade war between Beijing and Washington has been a decline in prices due to fears of a concerning global economic slowdown and even a recession in the U.S., which could affect the dwindling demand for hydrocarbons.

In this sense, day by day it is evident that the increasing signs of global economic weakness are affecting energy consumption. This was explained by the International Energy Agency (IEA), which already in August reduced its growth estimates for global oil demand for 2019 and 2020 to 1.1 million and 1.3 million barrels per day, respectively, meaning the slowest demand growth since the financial crisis of 2008.

Additionally, Chinese economic growth has fallen to its lowest level in nearly three decades. It slowed to 6.2 percent in the second quarter due to the trade war.

The benchmark for Brent crude hovers around 60 dollars per barrel, while WTI is priced around 56 dollars, affected by concerns about the slowdown.

Beyond that data, which is revealing in itself, the Saudi element remains decisive. The state-owned Aramco managed to restore its production capacity to 11.3 million barrels per day, a recovery faster than expected after the attacks.

And what about Colombia?

The background indicates that a drop in crude oil prices almost automatically causes an increase in the dollar exchange rate, a figure that, when nearing 3,500 pesos, has awakened special sensitivities because historical ceilings have been broken that could impact the family basket and inflation.

On another note, national entrepreneurs are hopeful that if tariffs restrict the entry of Chinese products into the U.S. market, our country could take advantage of the situation. In a report published by El Tiempo, María Claudia Lacouture, president of the Colombian-American Chamber of Commerce, is quoted as saying that “at least 740 products that Colombia exports to the U.S. have been identified in the new tariffs on China and could increase their sales to that market.”.

The other side of the coin is shown by Javier Díaz, president of Analdex, the exporters“ guild, who warned that ”many of the Chinese products that cannot enter the United States will now want to bring them to our country at excessively low prices.”.

What analysts and entrepreneurs agree on is that the effects of this trade war will be indirect, but they point to the weaknesses of the hydrocarbons sector in Colombia, for example, since production is still prioritized over exploration, in a context where techniques like fracking advance not without difficulties.
Another element is that the environment of global uncertainty and distrust makes investors seek to place their resources in comparatively safer assets against Colombia.

Therefore, Lacouture believes that “no trade war is good for anyone. We would all be losers. There would be a greater risk of a decline in economies. Consequently, it is not a matter of opportunities per se.”.