Since the U.S. threat to increase tariffs on Chinese imports seems set to become reality tonight, oil prices have been slowly declining from six-month highs. Both parties have been tightening their positions, and if a full-fledged trade war breaks out, oil prices might decline with a worldwide collapse in stock markets and commodity currencies.
The trade spat is causing fears about global economic growth, which might undermine the case for higher oil prices made by the demand side. Oil markets may rapidly turn their attention to the geopolitical threats posed by Iran, Russia, Venezuela, and Libya if negotiations do not entirely collapse.
There are no indications that the gulf between the United States and Iran will stop escalating. The U.S. sanction exemptions that expired at the beginning of the month are exerting more strain on Iran’s already fragile economy. President Trump made the decision to withdraw the United States from the historic nuclear agreement negotiated under President Obama a year ago. The United States wants Iran to make a deeper commitment to scale down its nuclear aspirations, but Iran has little interest in doing so.
If Iran takes steps to block the Strait of Hormuz, a crucial transit route for more than 20% of the world’s seaborne crude-oil trade, upside risks for oil prices might increase.
The Druzhba pipeline system’s Russian crude pollution from last month is still not rectified. Although the quality of Russian oil has improved, European refiners are still not pleased. The majority (92%) of Russian Urals crude shipped from Ust-Luga port stays aboard ships. Although the three-week interruption may be over by May 11, its repercussions will still be seen in the oil markets.
As Juan Guaido, who has the support of the US, was unable to remove President Maduro at the end of last month, the situation in Venezuela is becoming worse. Although the opposition looks to be a long way from amassing the necessary military backing, the rebellion is likely to continue. Before another effort can be made, it seems that the scenario will need to see an increase in demonstrations and Guaido gaining greater military support. The likelihood of further declines in Venezuelan oil output in the next months is quite likely.
The Libyan National Army (LNA) may continue to push for the removal of the UN-backed government, therefore the civil war in Libya is unlikely to show any signs of calming down. Further interruptions and a potential lack of investment might harm Libya’s oil industry’s ability to thrive in the future. The administration is under constant pressure as a result of the substantial decline in oil income.
The conclusion of the trade conflict between the United States and China and a possible acceleration of the rise in U.S. production levels continue to be risks for West Texas Intermediate (WTI) oil. Stockpiles of crude oil decreased by over 4 million barrels this week, against experts’ expectations of a 1.2 million barrel rise. Oil prices rose as a consequence of the announcement, but the most recent round of data has been inconsistent, with some weekly findings revealing unexpectedly significant increases in supply.
Key support is building from the 23.6% Fibonacci retracement level and the 50- and 200-day simple moving averages, according to price activity on the daily WTI oil chart. If there are no more days with daily closes below $60.00, oil may stay stable at this level. If the negative trend continues, $56.40 will serve as important support.
If oil prices do manage to increase, the Canadian dollar may see a stronger recovery. Since the link between the loonie and oil prices has been broken since March, the Canadian currency may be able to catch up in this situation. Strong oil prices historically portend well for the Canadian economy since oil is one of the country’s main exports.
Before the U.S. market closed, the OANDA order book indicator revealed that OANDA’s customers had 63.7% short positions and 36.3% long positions, with 0.6% of pending sell orders near the 1.3510 level.
This article’s informational material is provided for informational purposes only and does not consider the unique circumstances of any particular customer. It is neither investment advice nor a commercial inducement. Examples are provided purely for illustration and may not represent current pricing. It is exclusively the responsibility of the client to decide if trading or a certain transaction is right for them and to seek out expert counsel.
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