Crude reversal in oil amid US-China trade escalation
Fawad Razaqzada May 13, 2019 12:14 PM
Investors initially ignored the sharp escalation in the US-China trade dispute after China retaliated by applying 25% tariffs on $60bn of US goods. But as stocks and emerging market currencies sold off, so the pressure grew on oil and both contracts started to shed significant chunks of their earlier gains.
Oil rallied earlier as prices broke out of consolidation on news that two Saudi Arabian oil tankers were “sabotaged,” raising fears over supply. Investors initially ignored the sharp escalation in the US-China trade dispute after China retaliated by applying 25% tariffs on $60bn of US goods. But as stocks and emerging market currencies sold off, so the pressure grew on oil and both contracts started to shed significant chunks of their earlier gains. Before long, both Brent and WTI turned negative on the day, leaving behind some bearish-looking price candles on the charts (see below). If tariffs are seen as being negative for China’s economy, then it should be bad news for oil demand. So, today’s turnaround makes logical sense. Meanwhile on the supply side, expectations that Saudi Arabia will hold off from sharply ramping up its production to compensate for the loss of Iranian oil supply is keeping the downside limited for now. However, with the US oil output continuing to grow, the oil market will not stay this tight for too long. Thus, oil prices are likely to fall back in the long term.
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