Crude Oil - Iran sanctions or trade war? That is the question

Market Analysis /
Greg McKenna / 10 Sep 2018

Welcome to Crude Oil Today, my brief look at what's happening in oil markets and what it might mean for prices. 

As ever, feedback welcome

QUICK SUMMARY

The battle of the bulls and the bears in crude markets at the front end of the curve is one of supply disruptions versus worries over a trade war-induced slowdown in global growth and hence demand. And we saw concerns about both sides of that argument Friday. 

In the end, oil lifted of the lows as protests in Basra seemed to reinforce the issue of supply disruptions. Brent was up 0.4% to $76.83 while WTI was largely unchanged at $67.75. 

BIGGER PICTURE

Trouble in Basra, falling Iranian supply, hurricanes forming in the North Atlantic, and questions about bounty sharing from the increase in OPEC output which will flow from Iran’s sanctions and reduction remain the key top of mind drivers of bull case for oil right now as they pertain to the supply-demand balance and potential further outages.

On the other hand though the soon to seriously escalate trade battle between China and the US is a bear point because of what it could do to global growth and thus oil demand. Indeed given we may have already seen the reaction to Iran's withdrawal - or a fair part of it - because Iran's supply has diminished as demand evaporated faster then expected so the focus may turn more aggressively toward the outlook for growth from the trade war. 

It already seems to be doing that if we look at the EURAUD rates which is up near three-year highs as traders and investors bet the Aussie and Australia get hit by China and trade. 

It’s fair to say that based on my scan of the charts over the weekend both WTI and Brent look like they are rolling over. Indeed,if you look at this chart of WTI it’s fair to say that even though Friday was a positive candle price seems to be rolling after that big false break of the top of this wedge last week.

Click on me, I'll expand
Click on me, I'll expand

Please note I talk about both Brent and WTI each day in my Markets Video.

DATA:

Look out for any further estimates for Cushing inventories as well as the API and EIA data later this week. 

Elsewise, looking at the day ahead we are still waiting on President Trump’s next tranche of tariffs, while we get NZ manufacturing data, Japanese Q2 GDP (final), Chinese inflation and vehicle sales along with a speech - at 1.05 pm AEST - from Michele Bullock, RBA Assistant Governor (Financial System) on “ The Evolution of Household Sector Risks”. That might be worth a read folks given the outlook and falling house prices. Tonight it’s UK Q2 GDP, industrial production, and manufacturing data in an otherwise quiet evening of releases.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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