Oil Price Boosting Up but Is It Sustainable?

  • Sep 25, 2018 AEST
  • Team Kalkine
Oil Price Boosting Up but Is It Sustainable?

The oil prices have been on a rise and the expectations are that it could touch $US100 mark. However, some speculation on this are playing over the market. According to the top executive at the trading business of BP in Asia, this strong momentum would end soon. According to them, the shortages on the supply side from Iran on the back of the sanctions imposed by the United States would not sustain considering the long-term scenario. They added that the crude is yet to face the adverse effects from the trade conflicts between the US and China. These tensions are likely to go on for a long period of time. The United States is not backing out and is slapping tariffs on a back to back basis.

In addition, China’s move to cancel the trade talks also suggests that they have also opted for a tit for tat approach. According to China, it would not sit and have a discussion with the United States as long as the latter continues to levy tariffs. The war got escalated after the US imposed tariffs on $200 billion of Chinese imports and has even warned to slap tariffs for higher amounts.

Firms like Mercuria Energy Group as well as Trafigura Group are of the view that the expectations for $US100 price for Brent crude per barrel is on the back of supply shortages. The heightened trade worries between the US and China have been ignored by the Brent prices considering the scenario in the past few weeks. The sanctions imposed by the United States on Iran seems to weigh on the investors. 

Brent crude recorded a sharp increase of over 3% on the ruling that increasing the output is not needed. The price even surpassed the $US80 per barrel mark which also reflects the highest price in the past 4 years. The ruling of not boosting the supply is against the US President Trump who suggested that the supply needs to be increased globally. According to the meeting which was conducted in Algiers, even though the supply has been reduced from Iran as a result of the US sanctions, there is no immediate need to fuel the supply. The strong momentum in crude negatively impacted other commodities which includes Copper and as a result, Copper witnessed the downward momentum on concerns that the economic growth on the global basis would deteriorate on the back of the trade disputes. These trade worries could severely impact the economies and could derail the growth prospects.

Brent crude was noted to touch $US81.11 a barrel while US oil was up over $US72 a barrel.

Meanwhile, with the rise of price, energy stocks zoomed up with Woodside Petroleum being up 2.45 per cent, Santos Ltd up about 2.4 per cent and Origin Energy up 1.4 per cent. On the other hand, stocks depending on the fuel for operations were down with Sydney Airport down 1 per cent and Webjet down 5.7 per cent before market close.

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