Can Oil Gains Be Sustained Post Dismal OPEC Oil Demand Growth Report?

Can the move higher in oil be sustained after OPEC demand growth downgrade?

Oil was on the rise as the new week kicked off following escalating tensions in the middle east and on growing optimism over US – Sino trade negotiations.  However, gains could be limited following a dismal OPEC demand outlook report.

Boosting the price oil:

  • A drone attack by Yemeni separatists on a Saudi Arabian oil field over the weekend stoked fears that geopolitical tensions were on the rise again in the region. Whilst oil production has not been affected this time, a risk premium is being priced in. This risk premium could prove to be relatively short lived given there was no apparent supply disruption. Iran related tensions could ease further since Gibraltar released the Iranian oil tanker seized in July.

  • Reports that the US and China are still talking raised hopes of a trade deal, after tensions escalated earlier in the month. Any sense of progress between the two largest economies in the world is considered a positive for global trade, economic growth and therefore oil demand

  • The prospect of stimulus to sure up major economies which are facing slowing economic growth is offering support to the price of oil.  Germany has pledged €55 million in extra spending should it fall into recession. Perhaps more importantly China has unveiled reforms to reduce corporate borrowing costs. The ECB looks set to ease policy when it meets in September and all eyes will be on Fed Jerome Powell on Friday to see whether he resets monetary policy expectations to bridge the gap between what the market is pricing in and what the Fed said at its last meeting.

Weighing on the price oil:
  • Global recession fears amid the ongoing trade dispute can’t be ignored. These fears have seen oil decline over 5% so far this month.

  • OPEC cuts its demand growth by 40,000 bpd for 2019 and indicated that the market would be in surplus in 2020. Such a bearish forward view will pile the pressure on OPEC to consider continuing supply cuts into next year or deepen currently production cuts further. 

  • Whilst the middle east geopolitical tensions and US – Sino trade optimism are driving prices higher, the demand growth outlook report is significantly gloomy to cap any gains and potentially pull oil southwards.
WTI levels to watch:
Support can be seen at $54.80. A break through this level could see the price decline to $53.77 prior to $53 and then $50.50. On the upside a break above $56 could see the price of oil propelled to $57.40.







Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.