Can Oil Gains Be Sustained Post Dismal OPEC Oil Demand Growth Report?
Fiona Cincotta August 19, 2019 11:06 AM
Can the move higher in oil be sustained after OPEC demand growth downgrade?
Oil was on the rise as the new week kicked off following escalating tensions in the middle east and on growing optimism over US – Sino trade negotiations. However, gains could be limited following a dismal OPEC demand outlook report.
Boosting the price oil:
- A drone attack by Yemeni separatists on a Saudi Arabian oil field over the weekend stoked fears that geopolitical tensions were on the rise again in the region. Whilst oil production has not been affected this time, a risk premium is being priced in. This risk premium could prove to be relatively short lived given there was no apparent supply disruption. Iran related tensions could ease further since Gibraltar released the Iranian oil tanker seized in July.
- Reports that the US and China are still talking raised hopes of a trade deal, after tensions escalated earlier in the month. Any sense of progress between the two largest economies in the world is considered a positive for global trade, economic growth and therefore oil demand
- The prospect of stimulus to sure up major economies which are facing slowing economic growth is offering support to the price of oil. Germany has pledged €55 million in extra spending should it fall into recession. Perhaps more importantly China has unveiled reforms to reduce corporate borrowing costs. The ECB looks set to ease policy when it meets in September and all eyes will be on Fed Jerome Powell on Friday to see whether he resets monetary policy expectations to bridge the gap between what the market is pricing in and what the Fed said at its last meeting.
Weighing on the price oil:
- Global recession fears amid the ongoing trade dispute can’t be ignored. These fears have seen oil decline over 5% so far this month.
- OPEC cuts its demand growth by 40,000 bpd for 2019 and indicated that the market would be in surplus in 2020. Such a bearish forward view will pile the pressure on OPEC to consider continuing supply cuts into next year or deepen currently production cuts further.
- Whilst the middle east geopolitical tensions and US – Sino trade optimism are driving prices higher, the demand growth outlook report is significantly gloomy to cap any gains and potentially pull oil southwards.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.