What Would It Take To Rally Oil Prices?
Investing.com | Oct 17, 2019 20:12
When U.S. President Donald Trump announced that trade negotiations with China were progressing well via agreement to ease the trade war and set the stage for further negotiations.
According to the President, the initial deal made last Friday will need to be followed up with a “phase one” agreement that will be hammered out in the next three weeks.
Oil markets were clearly suspend its plans to raise tariffs from 25% to 30% on $250 billion worth of Chinese products this week. In fact, Brent closed above the $60 per barrel mark on Friday.
h3 Economic Data Weighs On Oil Prices/h3
However, by Tuesday, oil markets were much less impressed with the progress made in the U.S.-China trade relationship. The week opened with corporate profitability of Chinese factories also showed a drop.
Apparently, the early stage trade agreement with China was not enough to keep oil markets happy in the face of more negative economic data, as Brent fell 1.15% and WTI fell 1.5%.
WTI dropped again on Wednesday after data from API—which was released a day late due to observance of the Columbus Day holiday in the U.S. on Monday—showed a significant increase in crude oil storage in the U.S. (over 10 million barrels). However, the decline which was only about 0.3%, revealed skepticism that the EIA data will present such a large build in crude oil storage when they are released on Thursday.
The market's quick reversal after the initial elation from the U.S.-China trade progress news begs the question: what would it take to bring a sustained rally in today’s oil market prices?
h3 Prerequisites For Enduring Rally/h3
Geopolitically, that question was answered in September, when Aramco’s quick recovery from the attack on its oil facilities brought oil prices back from their $9 jump in just two weeks. It would probably take a full-scale war in the Persian Gulf with aerial bombing of oil facilities to bring about a prolonged increase in oil prices. Even the ongoing small-scale strikes on oil tankers in the Persian Gulf—and now the Red Sea—have only impacts on oil prices.
Get The App
In the United States, a fracking ban, in line with what Democratic presidential candidate Elizabeth Warren advocated, could curb oil and gas production in the United States to an extent that would push oil prices up in a sustained way. This scenario, like the all-out war situation described above, are unlikely prospects.
A more probable possibility that could materialize in the next three weeks is a first stage trade agreement between the U.S. and China. This would, of course, need to be followed up with further negotiations for an even more comprehensive trade agreement, but would be a concrete sign that trade relations between the two largest economies in the world are taking real steps toward normalization.
Another development that would rally oil prices is a mutual Brexit agreement between Britain and the European Union. Oil prices would react positively to the end of the economic uncertainty of the unresolved Brexit situation.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.