Global oil bulls were instilled with a renewed sense of confidence after OPEC and Russia rejected US President Donald Trump’s latest demand to boost output.
In a move that initially sparked volatility across oil markets, Trump described OPEC as a “monopoly” and urged the cartel to “get prices down now”.
Interestingly, this was not the first time Trump has criticized OPEC via Twitter and certainly may not be the last if oil prices continue to appreciate.
With Saudi Arabia and its biggest oil producing ally Russia already ruling out any immediate increases in output and stating that markets remain “balanced”, oil is likely to witness further upside gains.
Indeed, the pendulum swings in favour of higher oil prices in the short to medium term amid geopolitical risk factors. Looming US sanctions against Iran coupled with falling output from Venezuela amid a deepening economic crisis could accelerate the tightening of oil markets.
Although falling US Crude inventories add to the equation of themes that may push prices higher, this is nullified by the fact that US oil shale production is near a record high of 11 million barrels a day.
There is a strong suspicion that Trump desperately needs OPEC and Russia to plug the looming supply gap in November when the next wave of US sanctions hit Iran.
This makes sense, especially when considering how higher oil prices for US consumers in the run-up to the mid-term elections could be a headache for Trump.
While the supply side of the story is mostly influenced by geopolitics, with production losses from Iran and Venezuela tightening markets, the demand side remains shrouded by uncertainty. Global trade tensions are seen as a significant threat to oil markets in the longer term.
A full-blown trade war between the world’s two largest economies could destabilize global growth – ultimately impacting crude demand and translating to lower oil prices.
With Brent Crude jumping to levels not seen in four years above $80 and WTI Crude marching above $71, this is clearly a bull story – but the question remains for how long? Rising production from US shale remains a threat that must not be ignored, especially when considering how shale production is speculated to capture market share from OPEC until late 2020.
However, the technical picture remains firmly bullish for oil prices with Brent challenging $87.50 and Crude attacking $77.00 if the current upside momentum remains intact.
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