The impact of global trade disruptions on world oil markets

Official URL: https://www.kapsarc.org/research/publications/the-impact-of-global-trade-disruptions-on-world-oil-markets/

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.