freemexy: What next for oil as US-Iran tensions simmer?

What next for oil as US-Iran tensions simmer?

Jan 17 2020 at 02:19

If Iranian missile strikes on US forces in Iraq cannot make the oil price rally, then what can?

That is the question bullish oil traders have been asking this past week, after the fallout from the assassination of Iranian commander Qassem Soleimani saw prices jump briefly, before posting a dramatic retreat as the US and Iran moved to de-escalate. On Wednesday crude posted a peak-to-trough swing of almost 9 per cent, whipsawing those who thought oil prices were finally going to break comfortably above $70 a barrel.

With Brent crude back near $65, it might be tempting to conclude that the market has peaked. Some traders may want to start betting against oil prices, as long as both the US and Iran continue to avoid a direct confrontation, and supplies remain undisturbed.
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Simmering tensions in the Middle East are likely to remain supportive for prices in the coming weeks. It is far from certain that Iran’s retaliation for Soleimani’s death has concluded.

At the same time, the expansion of the US shale industry appears to finally be slowing. Traders are starting to shift from worrying about oversupply in the first half of this year to examining demand forecasts that broadly look more balanced with supplies from the summer onwards.

Oil prices might not have much further to rise, at least without another clear threat to supplies. But this does not look like a market at imminent risk of collapse. David Sheppard

Will the ‘phase one’ trade agreement fulfil its promise?

Investors will be on high alert this week for last-minute delays to the promised “phase one” trade agreement between the US and China. President Donald Trump says the agreement will be signed at the White House on Wednesday, but even this intermediate step could falter.

The Trump administration claims the deal is “in the bag”, yet details of the agreement have not been made public and are still being reviewed by both sides. It is unclear whether the final terms will go substantially beyond the truce reached in December. They may even fail to meet market expectations, whether in terms of the scale of concessions or by providing no feasible pathway towards a broader, more comprehensive settlement.

Officials from Beijing will probably head to Washington with a tailwind because economists expect China’s exports to snap a four-month streak of contraction. Data due to be released on Tuesday is expected to show a year-on-year rise of 2.5 per cent for December — the fastest pace of growth since July.

Yet tensions between the US and Iran will keep market participants on their toes. China, which last month held joint naval exercises with Iran and Russia, is now the biggest buyer of Iranian oil and has urged the US not to further escalate tensions in the Middle East.

But while Mr Trump has downplayed any further threats from Iran, Soleimani’s replacement has promised to take revenge by “uprooting the US from the region”.

With the trade deal’s signatories now on opposite sides of yet another geopolitical stand-off, Wednesday’s signing looks more challenging than ever.


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