Brent crude oil opened the trading week on a positive note with the prices recovering to $ 65 per barrel. As expected, buyers managed to seize the initiative. However, it’s still early to talk about the trend reversal. Only if the price holds above this mark, the oil will get the chance to recommence its uptrend.
Positive market sentiment was bolstered by the reports on crude oil and petroleum products in the United States. According to data from Energy Information Administration released last Wednesday U.S. crude inventories dropped by 10.8 million barrels in the week to July 19. The day before, the American Petroleum Institute (API) said U.S. crude oil inventories were down by 11 million barrels. In addition to oil stocks, petroleum inventories decreased too.
Bakers Hughes Inc. reported U.S. oil rig count decreased to 776, the lowest in 17 months. It’s worth noting that the number of active drilling rigs has been reducing for the fourth week in a row, which can affect total U.S. crude oil output. By the way, it’s the U.S. increased oil production and shale overflow, which triggered oil selloff and output cuts in the entire oil industry to stabilize the market.
The resumption of the bullish rally is also possible amid the Fed’s key interest rate cuts. Despite the fact that Friday’s G.D.P. data for the 2nd quarter of 2019 turned out to be better than expected (+ 2.1% y / y against the forecast + 1.8% y / y), it is obvious that the U.S. economy lost its upward momentum, forcing the Fed to ease its monetary policy to support the country’s economy. A stronger economy will trigger the increased demand for fuel in the second half of 2019. In addition, the Fed’s soft rhetoric is likely to weaken the dollar, which is also a positive factor for the “black gold”.
The latest escalation in the Middle East, which raised market concerns about interruptions in supplies through the Strait of Hormuz, was another catalyst for oil growth. Iran for the first time linked the British seizure of an Iranian oil tanker to the ailing nuclear deal, calling it illegal and a violation of the agreement, the New York Times on Sunday. According to Iran’s position, such actions openly violate the terms of the Joint Comprehensive Plan of Action (J.C.P.O.A.), commonly known as the Iran nuclear deal. Since Iran has the right to export its oil in accordance with the J.C.P.O.A., any impediment in the way of Iran’s export of oil is against the J.C.P.O.A. Market participants believe that in response, Iran may restrict the through the Strait of Hormuz - the most important passage for transporting crude. This scenario may send Brent quotes above $ 70 per barrel. With this in mind, consider buying Brent crude oil with the closest price benchmark just at $70.