Swissquote Bank Research Team
Swissquote Bank Ltd
Oil prices have been facing a roller coaster lately. The threats from US President Donald Trump to raise tariffs on China and threatening Mexico with similar sanctions along with the rise of US oil inventories and record production volumes incentivized commodity traders to disinvest massively in crude oil. Yet it seems that the situation is turning as investors are considering Middle East tensions and Gulf of Mexico storm in addition to the successive drawdowns of US oil inventories. However, the longer-term view remains blurry, as global oil demand is likely to decline further amid decreasing manufacturing activity and possible escalation of US – EU trade discord.
The decline in US EIA crude oil inventories for the week ended to 5 July at 9.5 billion bpd, the sharpest drop since March 2019 and fourth consecutive drop as well as geopolitical risks relating to Iran and a 1 million bpd output cut of oil companies operating in the Gulf of Mexico due to tropical storm Barry are boosting oil prices. Both Brent crude and WTI are now trading along May 2019 levels and expected to stabilize as investors are monitoring upcoming discussions between German Economy Minister Peter Altmaier and US Trade Representative Robert Lighthizer to avert a 25% tariff on EU auto imports. Topics targeted will mainly concern aircraft subsidies, car imports and Russian Nord Stream 2 gas pipeline that is supposed to double supply capacity to the EU. Despite optimistic views on coming discussions, it remains highly doubtful that solutions will emerge in the coming months.
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Crude oil should therefore stabilize and stay highly sensitive to major headlines. Still, further upside potential is limited on current price and OPEC production reduction status quo levels. WTI is trading at 60.68, approaching 60.95 short-term.
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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