The recent updates coming from the US front regarding trade tariffs with China is the most recent market mover and has affected the market as a whole. At the time of the news release, on Friday the 15th of June, when the mounting tariffs were announced, a huge market sell off was displayed with most of the focus on the US markets but also commodities. Crude Oil alone lost -3 dollars approximately going from $66 to $63 p/b.
The US decision to move ahead with the tariffs will hurt the oil market in general but more specifically American oil exports to China. On the other hand, China may use further retaliation measures by selecting to import oil from other sources even on slightly higher prices. On a more vengeful scenario, China may choose to import Oil from other sources on a more immediate note and on a more vengeful action.
On the OPEC front, Saudi Arabia and Russia have confirmed that on the upcoming meeting planned for the 22nd of June they will be talking on increasing supplies. In combination with the pre mentioned fallout of business agreement between China and the US, they could be the best choice for China. In addition it was confirmed by Russian officials that they are moving closer to sign a mutual agreement which will take their cooperation in the Oil market to a new level.
Furthermore, Iran has been cited as trying to prevent this oil supply from taking place. Iran says Venezuela and Iraq are in agreement to block Saudi Arabia and Russia’s proposal when OPEC and its allies meet in Vienna this week. Iranian officials stated that in order for OPEC to continue with Oil supply additions, it must be agreed on unanimously by all the members. If they decide to proceed without consensus in place, they could be in violation of OPEC laws.
On other news, tensions in Libya have resulted in a reduction of storage capacity by 400,000 barrels. It has been reported that a crude oil tanker was set on fire after tensions among rival groups for control of two key export terminals. The danger of the fire spreading to nearby oil tankers remains high and has the potential of hurting oil supply coming from the African country. However, this newsflash could provide support for oil prices as the commodities price has been pushed down in late May moving into June.
Venezuelan crude oil exports have dropped to significantly low levels according to EIKON Reuters. Problems with reduced output and mounting logistic issues mounting from a corrupt government have restrained the Latin American country’s oil activities. One of Venezuela’s most established crude oil buyers has been China. Estimates, indicate that China’s imports of Venezuelan crude oil could shrink to their lowest in nearly eight years in July as the OPEC producer struggles.
The most important event for the Oil market is the upcoming OPEC meeting on the 22nd of June on Friday. This event will give a clear view on the intentions of the organization’s future steps and what changes have taken place in order for OPEC to change its current strategy and start boosting supply instead.
Our first observation, is the strong support level near $65 which has been breached and now turned to resistance level. That acted as a resistance level in January and again in March. Oil has a well-established pattern of moving in trading bands. We see the case for the commodity to remain very close to that price action for the next days with some bullish tendencies.
However, please be advised Crude Oil could show its sensitivity on the US – Sino tariffs confirmed on Friday.
If the upcoming OPEC meeting acknowledges that further output will be produced we could see crude oil moving downwards towards the $63.50 Support level and even breach it aiming for the $62.00 Support hurdle.
The commodity could also be overtaken by a bullish movement causing it to move up towards the $64.95 resistance level and break it, moving further near the $66.13 resistance barrier.
Further news regarding the Venezuela’s decreased production could also provide support to Oil prices as the matter is somewhat unfinished and uncertain as per the outcome.