The current escalating trade wars between China and the US have seen a knock-on effect on many markets around the world, and it now seems that the latest round of retaliatory efforts have caused oil prices to drop.

This is due in part to the clouded forecasts for demand over the next few months, which has led to some analysts being unsure about future pricing, supply and demand.

Given that China and the US are the top two consumers of oil worldwide, it is no surprise that the market is so volatile at present. Brent crude dropped by 0.37% overnight, down to $77.76 a barrel. US West Texas Intermediate (WTI) crude was also down 0.22% in the futures market to $68.76.

Earlier this week, US President Donald Trump announced a new round of tariffs levied on $200bn of Chinese exports. These will start at 10% before rising to 25% from next year.

Wang Xiao, Analyst and Head of Crude Futures at Guotai Junan Futures, said that there is a developing worry that these ongoing disputes have already “hurt trading sentiment,” resulting in a drop in economic growth. This ties in with the available capital to buy oil at a certain price, which is why prices have already dropped slightly.

The new tariffs should impact the amount of oil used by both China and the US, as less trade means that less fuel is necessary to shift goods.

Meanwhile, the ongoing sanctions against Iran by the US are providing some buffer to the oil market. Iran is an OPEC member and the third-largest oil producer in the world. China has been buying up larger amounts of oil than usual ahead of a November deadline to cease trading with Iran, although it has not yet confirmed that it will agree to adhere to the US sanctions policy.

The US should ramp up production from its own shale gas reserves significantly to provide more of a continual supply at home.

Analysts now suggest that a positive outlook may have drained from the oil market in the face of difficult trading conditions, pointing to an inability for crude prices to rise above their current level. Brent crude could well fall by an additional $1 in the coming days, while WTI may fall below $68 a barrel.

Oil-producing countries have been agreeing to meetings to discuss their reactions to the current market, with OPEC and non-OPEC countries convening in Algeria this month. They hope to agree on a long-term framework that lays out co-operation between countries to fulfil current and future levels of demand.

The trade wars between the US and China has also knocked the US gas industry off-course, as the country may well find itself locked out of the Chinese market.

An increase in the production of liquefied natural gas (LNG) has led to the US exporting to many Asian countries, including China. However, this may not continue to be the case for much longer.

Experts suggest that this could cost the US gas industry somewhere in the region of billions of dollars. International Energy Agency Chief Economist Laszlo Varro said that if the US is unable to shift the gas that it has already produced, then it would be a “waste of capital, economically quite disruptive.”