The Cost of Chaos, Part 2: Oil Price & Trade War Uncertainty Continues

As we discussed in the first part of this blog series, one of the best ways to create long-term response plans to volatility is to stay informed. “Ongoing volatility” is a great way to summarize the changes in oil pricing and the status of the U.S.-China trade war. Uncertainty surrounding market and political events can mean additional time and resources devoted to weathering the “storm,” so we’re keeping track of them to the best of our abilities, and relaying what we’ve learned.

Read on to discover the latest developments in the oil market and trade war.

Oil Price Developments

Oil prices rapidly fell throughout the first months of 2019, but is on the rise once again as of the first week of April. While October 2018 saw oil prices of over $84 per barrel, in February 2019 they plummeted to around $55. However, prices have been on a surging uptick (at faster rates than predicted), and as of April 4th Brent oil prices exceeded $70 per barrel for the first time in nearly 5 months.

What’s Causing the Oil Price Increase?

A single surge isn’t proof of a trend. However, analysts cite the tight global supply as a probable cause for the price increase. Part of this may be due to OPEC’s plan to cut oil production and supply by 1.2 billion barrels of crude oil per day in April.

This limit on production is a carefully organized counter-balance to the recent months’ drops in oil prices. By restricting the supply, OPEC hopes that the price will correct itself. The measure also aims to help restore the economies of OPEC countries that depend on oil exports.

According to President Trump (stated on Twitter in February), “Oil prices are getting too high. OPEC, please relax and take it easy. World cannot take a price hike — fragile!” However, the Saudi Energy Minister Khalid al-Falih returned that the OPEC is indeed taking it easy, and emphasized that overall pricing stability is the highest priority. Price stabilization is essential for reliable supply chains. When manufacturers and distributers can predict upcoming costs, they can more accurately budget for their own processes.

U.S.–China Trade War Developments

Economic turbulence and pricing competition aren’t the only forces hitting markets. With the ongoing talks between China’s President Xi Jinping and President Trump, both domestic and international markets have been waiting to hear about the future regarding:

  • Oil markets
  • Intellectual property rights
  • Tariffs on Chinese-manufactured goods
  • Stability for domestically produced parts and equipment

Recently imposed tariffs have hurt affected industries, particularly manufacturing. These tariffs are currently at 10%, and the planned raise to 25% is currently on hold in a temporary 90-day agreement. A point of continuous debate is that China would like to remove all tariffs involved, while Trump insists that some tariffs remain for the U.S. to have leverage over China until all resulting agreements are fulfilled.

Is an End to Trade Tensions in Sight?

China and the United States have been negotiating several of the items listed above to reach compromises without imposing further tariffs or intensifying the trade war. According to President Trump, there has been “substantial progress” in reaching a deal. The progress may be enough to do away with the previously planned tariff increases from 10% to 25%.

However, if these increases are indeed imposed on the 5,700+ products outlined by the Trump administration in June 2018, the resulting pricing instability will undeniably hurt industries on both sides of the Pacific. Manufacturers that rely on rubber and polymers in particular, such as the automotive and medical technology fields, will especially feel the fluctuations within the supply chain.

Current progress in the China-U.S. negotiations has so far delayed new instability. As of April 4th, Trump has relayed that trade talks are going well, and that both sides of the table plan to continue talks and sign a final trade agreement soon. UP&R will be closely tracking this progress to provide updates on potential impacts and pricing considerations throughout the upcoming weeks.

High Quality Products During Turbulent Market Conditions

Maintaining a secure supply chain is absolutely crucial to every industry, including those of us – including UP&R – that rely on oil compounds and rubber. Although international markets may be in a state of flux, you can trust that UP&R will remain consistent in delivering the highest-quality products every time. Our rubber and plastic extrusions, rubber moldings, and die-cut parts will continue to be available at reasonable price points.

We have over 50 years of rubber and plastic extrusion experience, with specialties across many industries. Although political tension, oil market fluctuations, and international trade uncertainties may create worrisome headlines, you can always rely on Universal Polymer & Rubber. Contact us today to learn more about our capabilities and services.

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