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Oil Near 7-Month Lows, Giving Trump Low Price Wish for Elections

CommoditiesNov 01, 2018 03:04PM ET
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© Reuters. Oil nears 7-month low, extending October's rout. - Donald Trump’s plan to keep oil prices low before next week’s U.S. midterm elections seems to be working, with crude starting November at near 7-month lows after the president’s own assessment that sanctions against Iran won’t bite. Record high production of U.S. crude also is adding to the market’s slide.

What’s unclear though is whether oil bulls that chased prices up as Trump targeted Tehran will get any reprieve at all when the embargo against Islamic Republic’s oil exports officially begins in three days.

Trump said in a presidential memorandum on Wednesday there was sufficient supply of petroleum and petroleum products from nations other than Iran to permit a reduction in purchases from Tehran. India and South Korea agreed with the U.S. on the outline of deals that would allow them to keep importing some Iranian oil after this weekend, Bloomberg reported.

U.S. crude output, meanwhile, surged 416,000 barrels per day to a record 11.346 million bpd in August, government data showed.

“It’s a perfect storm for oil today and it’s what Donald Trump’s wanted. If you’re the president, you don’t want people to be driving to the voting station and filling up their cars with expensive gas,” Phil Davis at PSW Investments in New York said. From a near four-year high above $2.28 per gallon in May when Trump announced the sanctions on Iran, gasoline has now hit 9-month lows under $1.69.

At Thursday’s close, U.S. WTI crude settled down $1.62, or 2.5%, at $63.69 per barrel. It earlier fell to $63.11, its lowest since April 9.

U.K. Brent crude, the international benchmark for oil, was hit even harder, falling $2.70, or 3.6%, to $72.77 by 2:55 PM ET (18:55 GMT). The session low was $72.57, a trough since August.

WTI lost 11% in October and Brent 9%, posting their biggest monthly loss since July 2018.

Brent Below $70 Next, WTI Under $60?

Just about a month ago, most oil traders and Wall Street bankers were talking about Brent hitting $100 by early 2019 after it crossed $86. WTI, meanwhile, surged above $76.

Now many don’t discount Brent breaking under $70 and WTI falling beneath $60.

Thursday’s selloff baffled some traders who couldn’t understand the sudden breakdown in oil’s correlation with equities and reverse trade with the dollar. Shares on Wall Street rose for a third-straight day while the dollar tumbled.

“The market is betting on supply that may be there later, but it is clear that it is not here now,” Phil Flynn, an analyst at the Price Futures Group in Chicago, who’s typically bullish on oil, said, referring to the Saudi assurance that it will pump all that’s needed to make up some 1.5-2.0 million barrels lost from Iranian output.

Others like Davis of PSW said oil was being driven down now by the same herd mentality that took it to four-year highs in September.

“It’s all speculation, but I believe there will be some impact from the Iran sanctions and that’s why I’m long WTI again from today as we could get to $67 after Thanksgiving Day,” said Davis, who previously shorted U.S. crude from $72 to around $62.

Canadian bank-backed brokerage TD Securities had a similar opinion.

“We double down on our Brent crude trade, adding a further 137 lots at $72.80, as we hold a strong conviction towards higher prices given the asymmetric risk profile generated from Iranian sanctions in the coming months,” it said.

Oil Near 7-Month Lows, Giving Trump Low Price Wish for Elections

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