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Brent spike is unjustified
Commodities
09/18/2018

Brent spike is unjustified

Crude oil price action looks unstable these days, with Brent tends to grind lower since reaching a peak above $80 last week.

Crude oil price action looks unstable these days, with Brent tends to grind lower since reaching a peak above $80 last week. The barrel has rebounded after a brief dip towards $77 support earlier on Tuesday and jumped aggressively to $78.80 recently on the reports that Saudi Arabia said to prefer Brent above $80. However, the asset remains vulnerable to losses down the road, and the spike is hardly justified.

Generally, the key source of distress for crude oil prices comes from the ongoing US-China trade war. Trump has slapped tariffs on $200 billion of Chinese goods overnight. Beijing vowed to retaliate and accused the US President of poisoning trade talks. As such, this factor remains the bearish driver for Brent as the escalation of the conflict causes concerns over the global demand.

Besides, Iraq can increase oil production immediately to support the market ahead of the implementation of US sanctions on Iran, while Russia’s Novak said yesterday that OPEC and its allies could discuss the possibility of increasing oil production by more than 1 million barrels per day during the upcoming meeting scheduled on September 23.

As such, the market will continue to follow the developments from these two fronts in coming days, while recovery attempts will likely be limited and short term due to the lingering downside risks for demand and the prospects of increasing OPEC supply.

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