If China Buys Iran Oil, Prices Could Shrink By $30, Warns BofA

According to a recent statement by Bank of America the prices of crude oil in the international market would crash by $30 per barrel if Iranian oil is purchased by China as a form of retaliation to American decision to impose new tariffs on its imports. A report released by it on Friday warned that though their Brent forecast is $60 for next year but if China decides to purchase oil from Iran then it could send prices spiraling down by $20–30 per barrel.

The BofA made this announcement after Ministry of Commerce of China threatened that it would take countermeasures when President Trump announced that 10 % tariff would be imposed on $300 billion worth of Chinese imports. This announcement led to crash in oil prices and crude prices fell by 8% which is the biggest plunge in four years.

The shipment of crude oil from Iran fell below 550,000 barrels per day during June from a high of 875,000 barrels per day during May and 2.5 million barrels per day in June last year. Till the ban by US around half of Iranian oil exports were to China but now the decision to continue this trade could be a double edged sword say experts. Though Iran would be happy to increase its production as it does not pay much heed to UN sanctions but it would earn China a partner that cannot be controlled easily. Also other crude producers like Iraq or Saudi Arabia could try to attract China with lower rates to get extra market share. Analysts from BofA state that new rounds of US tariffs would lead to reduction in oil demand by 250,000–500,000 barrels on a daily basis. They believe that if this carries on till the end of 2019 or 2020 and Trump continues this hard stance against China then it will be hard for crude to break through demand concerns.

About: Akash Gokhe