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Forget OPEC: China is now moving the oil markets



Not long ago, oil prices would surge or fall on just a whisper from OPEC, which at that time had all the supply cards.

Only the hint that the world's most powerful oil cartel would cut production could dramatically raise the price of oil.

These days are over.

When the cartel announced November 30, 2016, it would reduce production for the first time in eight years amid a major oil price crisis, the market cheered. Before any cuts even occurred, sentiment alone raised prices from $ 50.74 near that day to $ 54.94 at the end of December 5, 2016.

From that point, at least up until recently, OPEC could drop it vaguest hint of production, or even thinking of production, and that would move the market ̵

1; no basics needed.

This phenomenon continued to be strong in the last quarter of 2018. On December 7, 2018, OPEC and its allies announced that they would do what they do best: pool and hold back oil production from the market. OPEC pledged to take 1.2 million barrels of oil daily from the market, sending oil prices up from $ 57.83 at the end of December 6 to $ 61.71 at the end of December 7.

By July 1, 2019, when OPEC and allies agreed to extend the production cut for another nine months, the bling in cartel messages had already been dulled. Not only did oil prices fail to jump, they moved in the opposite direction – not because of the OPEC cuts; rather because the market was no longer so interested. From a closing price of $ 67.52 on June 28, Brent fell to $ 65.01 on July 1, then fell to $ 62.72 the following day.

Since then, it has managed to move the needle just a little, somehow.

A New Whisperer in Town …

… and it's not Iran, or even American slate. The top marketer is China.

The residual effect of the American slate boom changed all this. In the wake of the oil price crisis that was largely caused by massive new slate production, the market began to move more by weekly estimates of commodity data from the American Petroleum Institute (API) and the "official" data on the same that would follow the next day from the Energy Information Administration (EIA). Related: This Texas Oil Town sees strongest wage growth in the United States

Now, all of these abbreviations are overshadowed in the market by the ongoing trade war, global economic data and demand signals coming out of China.

The biggest increase in oil prices this year was prompted by the September 14 attack on Saudi Aramco's oil plant, but that 15 percent increase could not be sustained as dramatically as the attacks were, and despite taking 5% of the world's oil of the market immediately.

Within a day, it was clear to traders that the Saudis would get things up and go quickly, and that there would be no significant supply crisis.

The attention immediately focused on China.

Now, the faint whisper of a potential "deal" to end the trade war, or a hissing signal that things are going to get worse, moves the oil needle most unsteadily.

4. in September, oil prices jumped over 4 percent only on Chinese economic data. Immediately prior to this, the market feared a weakening global economy.

It still is, but with each release of new data and indicators, it remembers or forgets that fear again.

10. In October, oil hit a two-week high of feelings that a trade war agreement was within reach in the form of a "partial" agreement. The market saw conversations as the biggest breakthrough in the 18-month trade war.

It turned out, it wasn't, and the oil parried the gains – again. Related: The Five Biggest Enemies of Oil and Gas

Every time the trade wars speak, the oil market listens much closer to listening to Iran's launch of a US drone, or even Iraq's dissolution into potential Civil War.

Certainly more than it listens to OPEC these days. It even listens to Trump's Twitter account more than it does the oil cartel.

But the trade war is the biggest threat to oil prices by far, and the market understands this.

The trade war is depressing economic growth in Asia and the United States because it increased the cost of importing goods and raising prices for consumers. This means a decline in economic growth, which always means a decrease in energy.

OPEC Coneded Its Own Defeat

OPEC has lost supply power.

No matter how long the cuts continue, it does not put an overpower. And there is even a Libyan civil war, Part II, crippling sanctions against Venezuela and Iran, and the most ferocious attack on the world's largest producer one could imagine.

OPEC is still cutting back on supply cuts and losing market share left and right, while US slate is just continuing to produce and produce. In other words, OPEC is giving up production and the US is increasing its market share.

So now, when US commodity data can move the oil price bar every week, more than a few statements coming out of OPEC, if you're playing oil volatility, it could all be about the trade war.

By Anes Alic for Oilprice.com

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