IGI Securities Limited – Commodity News

Karachi, June 19, 2018 (PPI-OT): Crude Oil

Technical

The WTI Crude Oil market spiked yesterday, reaching towards the $65 level and beyond. The market perhaps was a bit oversold. The market will continue to be very erratic over the next several sessions, as it await the meeting, and perhaps an announcement of production increases. In other words, this is going to be a very noisy couple of days. Brent markets also were very bullish during the day. The $75 level above is of course going to be resistance, so it may be a bit of a fight to get above there ahead of the OPEC meeting. The OPEC meeting will of course driver it go next, but right now it looks as if the market is trying to recover many of the losses over the last several days. The $77 level above should be the “ceiling” in the market, unless of course OPEC keeps production cuts in line, and perhaps sounds as if it has no interest in trying to increase production.

Highlights

U.S oil prices finished higher to recoup some of their recent losses

The global benchmark, was down 59 cents, or around 0.8%, to $74.75 a barrel and dampened appetite for risk-sensitive assets

OPEC will discuss an oil output hike of 300,000 to 600,000 barrels per day (bpd) at this week’s meeting

U.S President Donald Trump threatened to impose a 10% tariff on $200 billion of Chinese goods

OPEC and Russia were aiming to boost output by at least 1 million bpd at the June meeting

Fundamentals

Oil fell today as an escalating trade dispute between the United States and China unleashed sharp selloffs in many global markets. Global oil demand will be revised downwards and as such oil will not be immune from all of the potential negative impact of international trade wars.

The crude price was also dented by expectations that producer group OPEC and partner Russia will gradually increase output in order to make up for involuntary losses in Venezuela and potential shortfalls from Iran, which is facing U.S sanctions related to its nuclear activity.

The United States and China are threatening punitive tariffs on each other’s exports, which could include oil supplies, which sent Chinese stocks to their lowest in almost a year and kept European indices and other industrial commodities such as copper and nickel under pressure.

Brent crude futures fell 20 cents to $75.14 a barrel, while U.S crude futures lost 72 cents on the day to trade at $65.13 a barrel. The 585,000-barrel per day line is due to start flowing next year.

Oil investors are closely watching a threat by China to react to U.S tariffs by putting a 25 percent duty on U.S crude oil imports, which have been surging since 2017 to a value of almost $1 billion per month.

For the energy industry, the potential for relief has taken on added importance after China surprised markets last week by proposing 25 percent levies on about $1 billion a month in U.S oil imports in retaliation for U.S tariffs.

The pipeline industry could face higher costs from tariffs as about 77 percent of the steel used in U.S pipelines is imported, according to a 2017 study for the pipeline industry.

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