Crude Oil Prices May Fall on US-China Tension, Trump Speech Seen As Price Driving Factors? There may be a pattern of oil prices falling when tensions increase between the US and China, and this is the key problem for those who are calling for increasing supply to prevent price hikes. Is there a pattern with the oil price and tension between the US and China? If there is then supply is the only thing that keeps prices down.
You have to remember that high tensions such as war, riots, terrorism and political unrest or serious unrest is good for business for all oil producers, irrespective of their relationship with either of the two countries.
Peace and stability at a time of growing prosperity are very advantageous to the industries that make their money by selling oil. They are able to raise prices and at the same time reduce costs.
If the US and China get into a conflict, you can be sure that the oil prices will go up and there will be less than happy people who are in search of a buyer for the oil they produce. It might be a good time to start your own company.
Those who believe that raising prices to protect American consumers from soaring prices due to rising US-China tensions, are either short sighted or are simply ignorant of how the business of the oil industry works. Let’s look at the big picture here.
Markets are not so complex, and the effects of decisions by a few people are in no way reflected on the general population. Rather, it is the global consumers who are affected by these decisions.
Thus, if oil prices go up in a country that is producing less than our oil, we can still pay more than people in the other countries which are producing more. So, what do we do? Our only choice is to boost production to meet demand or buy more oil.
The long term benefit is that the world will end up producing less oil, which in turn, will mean lower crude oil prices. That is the positive side of increasing supply, but if you want to see short-term results, you need to increase supply.
If crude oil prices were going to increase because there were a supply and demand imbalance, you would expect the global market to crash and even crash hard with that supply overload. This wouldn’t be a problem for the oil producers who could cut their budgets to cover the deficit in the oil market.
But the producers don’t have a budget for the oil market, so they just keep pumping and there will be shortages everywhere. Everyone will be upset because there won’t be enough oil for everyone and thus they will want to have a hand in buying up the oil.
Everyone in the market crash as prices go up as the end buyers will get desperate for oil. In this scenario, we are back to the height of the last oil supply problem and with the increase in supply, prices go up.
This is a lesson that we need to keep in mind with crude oil prices. If we cannot agree on something and we continue to get into conflict, it might be good to keep our oil supply a bit lower.