Oil: The geopolitical risk supports the market

Envoyer par e-mail
05/23/2019 | 04:46 pm
The escalation of tensions affecting the Gulf countries is being closely monitored by the oil markets. Threats of war are being peddled, while Saudi Arabia and Iran are provoking each other head-on, giving rise to many concerns, as the region provides a significant share of the world's supply. Riyadh accuses Tehran of supporting the attack on its oil installations, bypassing the Strait of Hormuz, the region's main crude oil export route, which Iran threatens to block. These frictions are now escalating after the sulfurous tweet of Trump, promising Iran's “official end" in the event of armed conflict.
In addition to these exacerbated tensions, there are various market expectations about the conduct of the broad OPEC+ alliance, which is due to decide next month whether or not to continue its policy of voluntary production limitation. As such, the main parties concerned suggest that these production quotas could be renewed due to an increase in the level of world stocks. Thus, despite the decline in Venezuelan production, which is a victim of the country's socio-economic situation, the significant decline in Iranian activity, which is affected by US sanctions, and the surge in oil prices since the beginning of the year, OPEC+ could continue its efforts.

In addition, the International Energy Agency (IEA) believes that the growth in US production will be sufficient to compensate for the loss of Iran and Venezuela, certainly explaining the oil cartel's restraint in its desire to "stabilize oil prices".

Let us agree, although the continued efforts of OPEC+ are perceived as a bullish signal by the market, the lack of results crystallized by an increase in global stocks reveals a completely different, much more alarmist situation. The supply constraints mentioned above do support oil prices, but they are not accompanied by a rebalancing of the market.

As such, there is a structural problem somewhere, either demand is weaker than expected, or the rise of American shales is taking everything out of the way and compensating for the cartel policy. One thing is certain, the combined increase in stocks and oil prices is not sustainable.

Technically, in weekly data, the hesitation of operators remains palpable, as evidenced by the presence of many false signals over the past few weeks. A lateralization movement thus takes shape between USD 70 and USD 75. This is part of a fundamental trend that remains bullish. Only a weekly closing return below USD 70 would constitute a bearish alert and imply a correction up to USD 67.3 and then USD 63.
Jordan Dufee
© MarketScreener.com 2019
Envoyer par e-mail