Oil prices have lost some of the gains from last week's oil tanker attack in the Gulf of Oman, with fears of a recession surpassing geopolitical tensions and the risk of supply disruption.
"The reaction of oil prices to the latest escalation in the Middle East has been relatively moderate, with 30% of global oil shipments passing through the Strait of Hormuz, and only a small proportion of this total can be rerouted by oil pipelines. case of a nuclear disaster. conflict, "wrote Commerzbank in a note.
Tensions between the United States and Iran continue to mount, with US officials saying a military option remains on the agenda. On Monday, Iran said it would intensify uranium enrichment and could violate the limits set in the 2015 nuclear deal in response to US sanctions.
In recent memory, the likelihood of a new catastrophic war in the Middle East is at its highest level, but oil markets are largely in the process of minimizing risks, but are focusing instead on deterioration of the economic situation. Nearly half of the financial managers surveyed by Duke University and the Global Business Outlook Financial Director see a recession by the middle of 2020.
With the pessimism that has set in, oil has barely moved, despite the surge in US-Iranian tensions.
Hedge funds and other fund managers increased WTI short-term bets by 46% for the week ending June 11, according to data from Bloomberg and the CFTC. Merchants are clearly banking on an economy in crisis. "Outside the United States, global growth is definitely slowing down," Bill O'Grady, chief market strategist at Confluence Investment Management LLC, told Bloomberg. "The more trade tensions there are, the more likely growth will be slow, and if China's growth slows, it will not be good for oil." Related: Oil flat despite tensions in the Middle East
In a new report, Bank of America Merrill Lynch has lowered its forecast of growth in oil demand to just 0.93 million barrels a day this year and to 1 million a day in 2020. "However, we are in danger of" to be too optimistic if trade relations between the United States and China deteriorate further. Additional fees would probably require us to revise our numbers lower, "Bank of America analysts wrote. The investment bank lowered its price forecast for WTI and Brent for the second half of 2019 to 56 and 63 dollars a barrel, respectively, down from 58 to 68 dollars. The downward trend will continue into 2020 and Bank of America predicted that Brent would average $ 60 per barrel and WTI $ 54 per barrel.
"Oil prices have come down because there is a lot of oil and a lot of commodities," Tim Rudderow, who manages $ 1.5 billion at Mount Lucas Management LP, told The Wall Street Journal. "It lacks nothing."
The market is slow, but an even deeper slide is possible. Merrill Lynch of the Bank of America said, "If Xi avoids the G20 and buys Iranian barrels, the barrel will be worth $ 40. tariffs on Chinese imports. It slows the global economy and lowers the demand for oil. Meanwhile, Xi may also decide to continue buying Iranian oil, resisting US pressure on sanctions. In this scenario, Iran's oil exports fall less than expected. In the end, the market is saturated and the price of oil drops below $ 40.
Bank of America, except this extreme scenario, said some factors could help the rebound of the oil markets. First, the bank expects the US Federal Reserve to reduce its interest rates three times in the next 12 months. Then, of course, OPEC + will expand production cuts, helping to keep oil surpluses out of the market. Finally, the Trump administration could give up its trade war with China following a global economic crisis. Related: "Polar Silk Road" Could Be a Changing Factor for Natural Gas
The first two factors – a reduction in OPEC + spending and a Fed turnaround – seem relatively likely. But the trade war between Trump and China shows no signs of slowing down, despite the flood of new beards. Over the weekend, US Secretary of Commerce Wilbur Ross appeared to lower expectations of a breakthrough with China.
"I think the most important one coming out of the G-20 could be an agreement to actively resume the talks," Ross said in an interview with the WSJ on Sunday. "At the presidential level, they are not going to talk about the details of how you are applying a trade agreement."
"The most that could come are new basic rules for the discussion and a sort of timetable for the resumption of detailed technical discussions," added Ross.
By Nick Cunningham from Oilprice.com
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