Crude Oil Today - After bullish catalysts oil failed to hold its highs

Market Analysis /
Greg McKenna / 07 Aug 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

I feel like I’ve been to this movie a few times in the last couple of decades. But the US seems hell bent on regime change in Iran and is reimposing sanctions at midnight Washington time as the 6th becomes the 7th of August.

That news, along with reports that the Saudis have reduced production saw oil prices rally overnight. But nowhere near as much as you might have thought. So WTI is up 0.51% at $68.84 while Brent is up 0.63% at $73.67 – both are off between 80 cents and a dollar below the highs overnight.

BIGGER PICTURE

AS outlined above Oil was higher over the past 24 hours on a combination of reports the Saudis have lowered production and on the expectation that the US Administration would reimpose sanctions on Iran.  What’s most interesting to me though is the rejection of the high which were between 80 cents and a dollar above where prices sit this morning.

I’m too far away to know exactly why that is.

But the EU’s pushback against the sanctions saying it will seek to protect European companies who are doing business with Iran may have something to do with it. They are putting in place a so-called “blocking statute” which will take effect at the same time the sanctions come into force.

The US is up against it here.  Yes, China appears to have agreed not to buy more Iranian oil, just maintain current arrangements, but with Europe’s move and India’s increased ties and buying from the Islamic Republic it’s not a simple thing for the US to enforce the sanctions. Russia’s approach will be interesting to watch as well.

We’ll see,  but the other news was that Saudi production had dropped a little. Reuters reported, “Saudi Arabia pumped around 10.29 million barrels per day (bpd) of crude in July, two sources at the Organization of the Petroleum Exporting Countries said on Friday, down about 200,000 bpd from June”.

SO prices are higher but the reversal off the highs is interesting.  

The 4 hour Brent charts show $73.32 is the ST level to watch. A break would suggest a move back toward last week’s lows. WTI seems to be sitting right on a similar level at $68.88/90. A break would suggest a fall of $1 or so for each. Levels have to break through first. Tomorrow morning’s API data will be very important after the recent volatility.

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

DATA:

On the day the RBA is the big event here in Australia. No change is expected but we hear from the RBA – including today – three times this week so if they want to tweak or change their message this is the week to do it. So be on the lookout at 2.30pm AEST.   

Offshore the highlight is going to be the German trade data and industrial production. Coming a day after the IMF popped the Germans for their surplus and the pressure it puts on other nations this will garner some coverage. House prices are out in the UK tonight and in the US its JOLTS and the IBD/TIPP optimism survey while in Canada we get the release of the Ivey PMI.

But the big data release given the Yuan’s slide and the trade war is probably the Chinese foreign reserves data at 6 pm my time this evening.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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