Crude oil trades higher on stock drop and Iran

The April to June sell-off in crude oil was driven by a deteriorating outlook for global growth and with that demand for oil. In their latest ‘Short-Term Energy Outlook’ released yesterday, the EIA further reduced the 2019 outlook for global oil demand by 200k barrels/day to 1.1 million barrels/day. Monthly oil market reports from Opec on Thursday and the IEA on Friday will add some additional colour from these three most closely watched market forecasters. 

The Opec+ group’s decision to extend production cuts for another nine months and the above-mentioned fourth consecutive weekly drop in US crude stocks are currently two key drivers of support. On top of that, the ongoing geopolitical tensions between the US and Iran continue to add a still unquantifiable level of support. These potential risks could lead to a supply slowdown, should shipments through the Strait of Hormuz be threatened.

Looking at the WTI chart below, we find the early July sell-off has been reversed with the price once taking aim at the key psychological level around $60/b. While geopolitical risks and lower US stocks may provide support the challenging economic outlook may still prevent the market from mounting a break at this time.