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Crude Oil Drops as Riskier Aversion Increases

By:
David Becker
Updated: Apr 24, 2018, 18:45 UTC

Crude oil prices whipsawed initially moving higher but as riskier assets came under pressure on Tuesday, crude oil started to fall. A generally firmer

oil

Crude oil prices whipsawed initially moving higher but as riskier assets came under pressure on Tuesday, crude oil started to fall. A generally firmer dollar over the last week may have been stunting upside progress, but the market retains a strongly buoyant tone amid possible U.S. sanctions on Iran, added to signs of ongoing strong compliance levels among signatories of the OPEC-led supply curtailment accord. Brent crude oil hit $75 per barrel which appears to have been a take profit point for many oil traders.

Technicals

Crude oil prices closed near the lows of the session, holding support near the 10-day moving average at 67.55. Resistance is seen near the April highs at 69.56. Momentum has turned negative as the fast stochastic generated a crossover sell signal in overbought territory as the fast stochastic was printing a reading above 80.  Positive momentum is decelerating as the MACD (moving average convergence divergence) histogram is printing in the black with a declining trajectory which points to consolidation.

Brent Hits $75

Tuesday was the first time since November 2014 that Brent hit $75 and the possibility of sanctions on Iran has been the most significant driver of the oil price rally in recent weeks ,the other being the virtually eliminated global oil glut combined with robust oil demand growth.

U.S. President Donald Trump has until May 12 to decide whether to waive the sanctions on Iran. At the last waiver in January, President Trump warned that it was the last such waiver, “but only in order to secure our European allies’ agreement to fix the terrible flaws of the Iran nuclear deal.”

On Tuesday, a senior Iranian official, the secretary of Iran’s Supreme National Security Council, Ali Shamkhani, said that Tehran might quit the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) should the U.S. walk out of the nuclear deal that Iran signed with global powers in 2015. The Atomic Energy Organization of Iran was ready for some “surprising actions” if the deal were to be scrapped, Shamkhani said at a news conference broadcast on state television.

Sentiment is Weakening in Europe

German Ifo index plummets in April. The newly revamped Ifo index, which now also includes services, didn’t make nice reading, with confidence declining sharply to 102.1 in April from 103.3 in the previous month. Especially the expectations index took a hit and corrected to 98.7 from 100.0. The diffusion index, which gives the balance of positive and negative answers still shows optimism across all sectors, with the manufacturing reading at 24.0, but down from 27.3 in March. The services indicator fell back to 25.9 from 29.4. So similar to the PMIs data points to ongoing expansion, but a clear slowdown in momentum. The Bundesbank already warned yesterday that GDP growth slowed versus previous quarters, but so far remains optimistic that this was mainly due to special factors.

Iran Opposed to Extending Production Cuts

Extending the OPEC cuts beyond their current expiry date at the end of 2018 would seem unnecessary if oil prices keep rising, Iran’s Oil Minister Bijan Zangeneh told the Iranian oil ministry’s news service Shana on Monday. “High oil prices, even in the mid-term, would destabilize the prices and put pressure on them against OPEC’s interests,” the official outlet of the Iranian oil ministry quoted Zangeneh as saying.

 

When asked about Iran’s position regarding an extension of the OPEC production cuts beyond 2018, Zangeneh told Shana, “No decision will be made regarding this issue in the upcoming OPEC meeting because the matter is unlikely to be included in the meeting’s agenda.” Commenting on oil prices, the Iranian oil minister said, “I think that the balanced, non-fluctuating price of oil would be favorable for OPEC and other producers.” Zangeneh also commented on U.S. President Donald Trump’s Friday tweet about oil prices and OPEC’s role in fixing them.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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