Oil: Sanctions risk eases following Trump-Putin summit – ING

It’s unsurprising to see Oil trading lower this morning following the Trump-Putin summit in Alaska. While talks failed to secure a ceasefire, the tone and the absence of “severe consequences” for the lack of a truce, reduce, or at least delay, the risks of stricter sanctions. In fact, following the meeting, President Trump said he would hold off on secondary tariffs against China for its purchases of Russian Oil, citing progress made over the weekend with Putin, ING's commodity experts Ewa Manthey and Warren Patterson note.

Bearish Oil fundamentals to become the driver for Oil prices

"However, the next focus for the market will be talks today between Trump and President Zelensky, along with a number of European leaders. Ultimately, Russia still wants Ukraine to cede territory, something Ukraine will be very hesitant to do, particularly without very strong security guarantees from the US and Europe. Furthermore, there’s been little progress regarding the secondary tariffs that the US imposed on India for its buying of Russian Oil. These tariffs are set to come into effect on 27 August, so there is still time for India to try to negotiate ways to avoid them. Ultimately, the reduced risk of tougher sanctions and secondary tariffs should allow bearish Oil fundamentals to become the dominant driver for Oil prices moving forward."

"Positioning data shows that speculators continued to sell Oil over the last reporting week. The managed money net long in ICE Brent fell by 34,430 lots over the week to 206,547 lots as of last Tuesday. This was predominantly driven by fresh shorts entering the market. Meanwhile, NYMEX WTI also saw aggressive speculative selling, with the managed money net long declining by 29,562 lots to 49,264 lots. This is the smallest position that speculators have held in WTI since April 2009. Clearly, speculators are already focusing on the bearish outlook for the market."

"Baker Hughes data shows that US producers increased the rig count for a second consecutive week, increasing by 1 to 412. While it’s a very marginal increase, it does at least suggest that drilling activity may be stabilising, after the rig count fell aggressively from March through to early August. But given the expectation that Oil prices still have room to move lower, we may still see another leg lower in US drilling activity."