The impact of global trade disruptions on world oil markets
Aldayel, Abdullah and Al Quayid, Al Jawhara and Considine, Jennifer and Hatipoğlu, Emre (2019) The impact of global trade disruptions on world oil markets. [Working Paper / Technical Report] Sabanci University ID:KS--2019--II14
Our model simulations suggest three critical insights: 1. Despite a significant fall in global GDP, the price of Brent crude will fall only slightly. 2. Almost all oil producing countries see a significant cut to their oil production relative to their baseline, while the U.S. sees an increase. Saudi Arabia emerges as the swing producer, absorbing a significant portion of this production cut. 3. The trade war will lead to backwardation in the price of Brent, which is expected to fall slightly in the year following a negative shock to global GDP due to global trade disruptions, falling further in the second year of the disruption (2020). In anticipation of this, a. oil exporters will release a larger part of their inventories onto the market in early 2020,followed by a smaller amount in early 2021; b. oil importers will increase their oil purchases in 2021, capitalizing on lower oil prices.
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