Crude oil futures continued to fall in European morning trading Tuesday, with upside capped by the promise of a further escalation of the US-China trade war, but the primary focus remains the impending US sanctions on Iran.
At 1035 GMT, December ICE Brent crude futures were down 74 cents/b from Monday’s settle at $76.60/b, while the NYMEX December light sweet crude contract was 53 cents/b lower at $66.51/b.
“The biggest risk is still Iran and the fact we don’t have a clear view on the impact, we don’t know the ability of spare capacity to be initiated fast enough,” Ole Hansen, head of commodity strategy at Saxo Bank, told S&P Global Platts Tuesday. “The market has dropped by $10/b in less than a month and this has taken out a lot of bulls; there is a lot more nervousness about what is going to happen next.”
Supply and demand risks continue to cap prices and the promise that Saudi Arabia and Russia will increase output to fill the void left by Iran has seen oil prices react on the downside. Sentiment also remains weighed down by sell-offs in equities markets, a strong dollar capping commodity prices and geopolitical tensions continuing to plague growth prospects. This comes as US President Donald Trump threatened tariffs on all Chinese imports by December.
“It is hardly conceivable that China would continue in this case to exempt US crude oil imports from its counter-tariffs,” analysts at Commerzbank said in a note Tuesday.
The introduction of a 25% punitive tariff would see Chinese demand shift elsewhere, the Commerzbank analysts said. Brent prices have dropped sharply over the last month and the tease of $95/b seems a far stretch now as the market hovers above $75/b.
“People are cutting the combined long to the lowest in 15 months,” Hansen said. “The bullish froth in the market has been sharply reduced, so the market is more in a position to react.” The argument for $95/b before year-end remains valid but what has changed is the market has become more aware of the slowdown in global growth, Hansen said. The market is also awaiting the release of US inventory data by the American Petroleum Institute later Tuesday and the Energy Information Administration on Wednesday for further cues on price direction. Platts.com
