Oil prices are holding up

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.

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Swissquote Bank Research Team

Swissquote Bank Ltd

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