How The Trade War Impacts The Oil Industry

French President Emmanuel Macron, right, welcomes U.S President Donald Trump at the Biarritz lighthouse, southwestern France, ahead of a working dinner Saturday, Aug. 24, 2019. Shadowed by the threat of global recession, a U.S. trade war with China and the possibility of one against Europe, the posturing by leaders of the G-7 rich democracies began well before they stood together for a summit photo. The ongoing trade war with China is impacting many industries.

What could possibly cause a recession? Most economists think the economy is still pretty healthy, but trade wars cost consumers money. When consumers have less money to spend, they buy fewer goods. The overall economy slows down. That could push the U.S. and the entire world for that matter into recession.

This latest Twitter-salvo particularly rattled the markets, with the Dow Jones Industrial Average closing down over 600 points and oil prices shedding another 2%. However, in addition to the threat of an economic slowdown, a trade war with China impacts the oil markets in two other ways. The oil industry is capital intensive, and some of that capital equipment comes from China. Chinese steel, for example, is considerably cheaper than U.S. steel. If a pipeline company, for example, is forced to buy more expensive steel, it will impact capital budgets and result in fewer projects.

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