Many geopolitical events taking place as August makes a beginning, are due out and have the potential to cause chaos in the financial markets and especially for the commodities sector.
This article is originally referred from IronFX News.
First of all, we expect tremendous volatility coming from the trade dispute between US and China.
The US – Europe issue seems to be getting sorted out as they have agreed to follow on talks that will disable the tariffs.
On the other hand, China has not yet found a solution or an agreement with America, yet owns the power to move markets in case of a fallout.
Retaliation actions, could be a market mover for Crude Oil and energy’s instruments in general due to the fact that competition is very obvious in the market and production has been increased somewhat.
China may find a way to insert oil in its territory from countries the US does not approve of, or is competing with.
In relation to that event, could be China’s operation of extending a crude pipeline from Qingdao port to the city of Weifang in Shandong province.
Along came news that the pipeline transported 105,000 tons of South American crude from Qingdao port to Dongying Qirun Chemical Co.
On a related note, supply could be a big issue this week, as tensions in the Middle East are rising and they could provide some support to Oil prices.
Saudi Arabia announced it will be ceasing its oil shipments through the Red Sea as some tankers had been attacked by Iranian forces as they claimed.
Saudi officials confirmed the tankers had suffer minor damages and could be translated as a warning action.
This gave some upward price movement to Crude Oil but the issue remains as the specific route is of significant importance for Oil tankers.
Further afflictions or supply cancelations may boost Oil prices even higher.
Moreover and contrary to our previous point, the market was hit by some positive news coming from Saudi Arabia’s Saudi Basic Industries Corp, the world’s fourth-biggest petrochemicals company.
During the previous weekend SABIC stated it looks forward to positive growth in the second half of 2018.
This statement was then based on increased production and greater global economic outlook. The specific company was approached by Oil giant Aramco with the potential of an Investment according to Reuters.
The potential investment was confirmed by Aramco’s side, with a 70% holding being considered.
The news spread fast and attracted even greater attention by market participants for SABIC.
The Energy Information Administration (EIA) in the US, estimated average annual U.S. production will rise to a record high 10.8 million barrels per day (bpd) in 2018 and 11.8 million bpd in 2019 from 9.4 million bpd in 2017.
Also from the U.S. Baker Hughes rig count, an early indicator of future output, is higher than a year ago when 766 rigs were active.
At the moment, the count indicated that 861 Oil rigs are active, which accounts for an addition of +3 since last week’s count.
On another point of note, Iran’s currency dropped even lower on Sunday, surpassing 100,000 rials to the U.S. dollar as Iranians brace for August 7th when Washington is due to reimpose a first lot of economic sanctions.
Iran’s oil exports could plunge by as much as two-thirds by this year due these sanctions, awakening fears within the Oil market’s demand and supply curves.
The world, is still hopeful that the US and Iran could find a way to bridge the gap, however no evidence is in place at the moment.
If the current situation remains, we expect excessive turbulence within the Oil world and even geopolitical tensions to arise.
The scenario makes absolutely no sense, as tensions are more probable to increase Oil prices than stabilize them, which is a major failure and undesired event for most of the Commodities market.
Oil traders however, could be rubbing their hands.
Today Crude Oil has broken the price of $70.0 per barrel which is an indication of a bullish market movement.
If the bulls continue to dominate the Crude Oil market we could see it breaking the $70.57 (R1) resistance level and move even higher towards the $71.42 (R2) resistance level.
This scenario could be most probable if further tensions in the Middle East prevail and potential supply disrupts come into play.
A strong Support line is our $69.30 (S1) Support level which has been tested in the beginning of July and during the past week several times.
If any evidence of over supply is released within the news, we may see a bearish movement overtake the commodity. In this case, Crude Oil could break the $69.30 (S1) support level and move even lower towards the $68.43 (S2) support barrier.
Original Source: IronFX News