Trump request falls on deaf ears

Oil prices have managed to make back a good chunk of their initial losses after gapping lower following an eye-catching tweet from Donald Trump at the weekend. The US President claimed that Saudi Arabia King bin Salman had agreed to his request to increase crude oil output by 2,000,000 barrels (per day?) to compensate for what he called the “turmoil and disfunction in Iran and Venezuela.” So far, Saudi has not confirmed it had agreed to the request, merely pointing out that the two leaders had discussed the need to "preserve the stability of the oil market.”

While Trump is correct in identifying one of the major causes of the recent oil price rises, the market knows that Saudi won’t risk initiating another oil production war. The economic wounds of the collapse in oil prices in 2014 is still fresh. In fact, Saudi had already increased its oil production by a good 700,000 to 10.7 million barrels per day in June, according to a survey by Reuters. This means Saudi’s oil output is now well above the level specified in the production cut agreement anyway. Therefore, to say any further sharp increases would upset other OPEC members and Russia would be an understatement. It is also worth remembering that the “disruptions” mentioned by Trump here is partly due to his own actions after he announced the US would re-impose economic sanctions on Iran. Thus, it is unlikely that Saudi would raise its oil production by anywhere near 2 million barrels per day despite King bin Salman apparently agreeing that crude output needs to rise. Perhaps the King was being polite as he didn’t want to upset one of his close allies.

All that being said, we are certainly not bullish oil prices at these levels. While momentum could certainly help keep prices go a bit further higher, the growing oil production in the US may eventually derail the rally. Venezuelan oil production won’t remain low forever, either. But we can’t exactly be bearish on prices if they are not falling. After a sharp two-week rally and given their refusal to fall following Trump’s tweet, oil prices may actually spike to new highs for the year before we see any significant retracement or correction. Only when there is technical evidence of a top in oil will we turn bearish on prices. For now, we are neutral as we are fully aware of the possibility that momentum may carry oil prices higher for a while yet, possibly towards the 127.2% Fibonacci extension level shown on the WTI chart at $75.40. But if WTI were to break below today’s earlier low of $72.60, this would be a short-term bearish development and a subsequent drop towards the bullish trend and support at $69.35 would not come as surprise.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.