Fundamental analytics

Brent: Oil market is still under pressure on the back of trade dispute escalation.


Oil market remains under pressure on the back of escalation of trade contradictions between USA and China. During the first day of negotiations the parties failed to move forward in resolving key issues, that interferes with making the deal and Donald Trump took the decision to put new tariffs on the whole Chinese import, that take effect from today.

Today the second day of negotiations is going to take place, but according to Bloomberg messages the parties hardly will resolve all questions. China has announced retaliation already in response to hostile actions from USA, but didn’t discover the details and effective date for imposing of the counter-tariffs. Investors have fears, that trade relationship will get worse, that may have negative impact on global economy growth and crude oil demand.

One more topic, that attracts attention of traders is the situation around american sanctions against Iran. The day before Iran has called for the EU countries to weigh in on USA and deliver the options of resolving the issue with curbs of oil import from the Arabian country within 60 days. Otherwise Tehran has threatened to leave the nuclear deal. Also Iran continues to threaten USA and Saudi Arabia with blocking the Strait of Hormuz, which is used for transport of up to 90% of oil that is being output in the Persian Gulf countries. Some experts say, that Iranian factor can be a solid driver for the oil market growth, but from our point of view the effect of this situation on oil market will gradually decline. First of all oil supply restrictions against Iran were enabled more than a week ago, that didn’t drive to spike of oil prices and forming of the lack in offer. Secondly there are enough countries on the market, including Russia, Saudi Arabia, United States and etc., that are capable to offset oil supplies from Iran. OPEC+ countries didn’t reach an agreement on extension of the cut deal so far, therefore in the second part of the year the supply level can increase substantially.

Today beside American-Chinese trade negotiations market will monitor the fresh data on drilling activity in the US.

On the chart sideways channels continues to develop in the range between levels 68.65-70.75. So far there are no signals indicating probable exit of the price out of this consolidation, therefore intraday we expect further development of sideways channel within the above mentioned boundaries.

Resistance levels: 70.75, 72.00, 73.20;

Support levels: 68.65, 68.00, 66.00.

Main scenario: Further development of sideways channel in the 68.65-70.75 range.

Alternative scenario: Stabilizing above 70.75 and growth towards 72.00.

Negative sentiment prevails on the market so far, therefore within the sideways channel 68.65-70.75 we should give preference to going short from the upper boundary of the price channel.

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