IGI Securities Limited – Commodity News

Karachi, August 09, 2018 (PPI-OT): Crude Oil

Technical

The WTI Crude Oil market fell rather significantly during the trading session yesterday, reaching down towards the vital $67 level before finding buyers again. This was after the announcement of a drawdown of inventory, but less of a drawdown than originally thought in America. That $67 level very closely as it is important support that it has seen more than once. There are more than enough global tensions to keep somewhat of a bid in the crude oil market, so be advised that the $67 level will be very difficult to break down below. If it bounce from here, that would sustain the range bound action that it has seen between this level and the $70 level. Otherwise, it probably drop down to $66 looking for the longer-term trend line. Brent did a very similar thing during the day, reaching down towards the $72.50 level. It is starting to show signs of life again near this level, and it may see a turnaround.

Highlights

Oil prices slumped yesterday after Chinese import data showed a slowdown in demand

The market is supported by concerns the sanctions on Iran are going to reduce Iranian supply

The geopolitical risk from Iran is keeping a floor under the price

The United States re-imposed sanctions on Iran, the third-biggest producer in the Organization of the Petroleum Exporting Countries

The U.S EIA reported that crude oil inventories fell 1.4 million barrels in the latest week, less than half the 3.3 million-barrel

Fundamentals

Oil inched up today, paring some of the previous day’s steep price slide, after the first round of U.S sanctions against Iran came into effect, although confidence in crude demand has been hit by the escalating China-U.S trade dispute.

Brent crude (LCOc1) futures were up 14 cents at $72.42 barrel, after having dropped by more than 3 percent on Wednesday. U.S crude futures (CLc1) rose 8 cents to $67.02 a barrel, having closed down 3.2 percent the day before.

The renewed sanctions won’t directly target Iranian oil until November, although U.S President Donald Trump has said he wants as many countries as possible to cut their imports of Iranian crude to zero.

The impact of it is the greatest known unknown of the year. If worst comes to worst and 1.5-2 million bpd of Iranian disappears from the market. Calculations will go out of the window and oil bears will have to brace themselves for a very rough ride.

On top of the impact on the broader global economy, there is growing worry in the crude oil market about Chinese demand. Crude imports picked up in July after two months of decline, but were still among the lowest this year due to a drop-off in demand from smaller independent refineries.

The U.S Energy Information Administration, meanwhile, reported that crude inventories fell 1.4 million barrels in the latest week, less than half the 3.3 million-barrel draw analysts had expected.

Meanwhile, import data from China highlighted a continuing drop in demand from the world’s second-largest economy and one of the biggest importers of crude oil.