OPEC meeting in Vienna on 22. June 2018 was a real push for oil prices. Members confirmed their willingness to reduce total production output. Both Brent Crude and West Texas Intermediate (WTI) were trading at $79.44 and $74.15 on 29. June 2018, a 4-year high for the black gold. However, as the diplomatic situation between both largest oil consumers, China and the US, are deadlocked, the tendency on crude oil is reversing.
Indeed, following Wednesday’s OPEC report forecast confirming a decline in world demand for crude due to slowing consumption (OPEC-related demand estimated at 32.18 million bpd, a drop of 760’000 bpd compared to current year) and higher production from rivals, investors’ opinion drastically changed, causing a rapid selloff of the commodity. Crude oil and WTI dropped by -6.92% and -5.03% on Wednesday late afternoon session.
Aside from escalating trade tensions between the two largest nations, EIA US crude oil stockpiles report confirms a lower drop in inventories for last week while communications made by both the US and Libya with regard to further sanctions against Iran for one and reopening of four export terminals for the other provide a rather negative outlook for oil prices in the mid-term. Speculations involving US pressure on Russia for extending its oil production also support the downtrend.
Accordingly, we expect oil prices to benefit from a slight bounce in the short-term, as the worst-case scenario is now priced in. We would therefore recommend to reload at current valuation levels.
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