Crude oil prices got hit hard as the trade war for oil traders got personal. In a tit for tat, the Chinese government announced tariffs on U.S. oil imports as well as other energy products, in a sector that U.S. President Donald Trump promised to make great again. This along with the fact that most people believe that OPEC and Russia will decide to increase oil output even after reports that Bloomberg says that Iran, Iraq and Venezuela will veto the increase.
The U.S. dollar gained against all major pairs this week. A hawkish Fed and a dovish European Central Bank (ECB) gave the edge to the American currency. U.S. President Donald Trump scored diplomacy points in Singapore by meeting with North Korean leader Kim. Trade war fears were once again at the forefront as the Trump administration announced new tariffs on Chinese goods on Friday. Crude oil prices plunged as supply might be on the rise with heavy anticipation on the Organization of the Petroleum Exporting Countries meeting on Friday.
The coming week (June 18-22) should continue the trend of trending symbols. The only potential exceptions are gold and soybeans whose weekly pivots are sideways for reversal scalpers and who already made a wide-range move likely to consolidate sideways. However, both gold and beans have trending monthly pivots--a wild card working against my Iron Condor favorite trade.
This week has all been about major central bank meetings and as we had anticipated last week, it was indeed the European Central Bank that caused the most market impact with its decision. The euro/U.S. dollar (EUR/USD) currency pair almost fell 300 pips from its high on Thursday and European stocks rallied sharply after the ECB indicated that interest rates won’t rise until at least mid-2019, even if asset purchases were going to finish at the end of December.
As Russia smoked Saudi Arabia in the World Cup, crude oil ministers from those two countries signaled that indeed OPEC and Non-OPEC countries will be raising oil output. Saudi Arabia’s oil minister said it is “inevitable” that OPEC and Russian production will rise by what he says is a "reasonable and moderate" amount. T
President Donald Trump is fed up with crude oil prices and tweeted that “oil prices are too high, OPEC is at it again. Not good!” The Fed raised interest rates and Fed Chair Jerome Powell weighed in on oil and its impact on inflation and what they may mean for the economy going forward. This comes as surging U.S. refinery demand for oil shadowed over a 100,000-barrel a day increase in U.S. oil production.
While the markets await the outcome from the Fed meeting and oil traders fret about whether OPEC and non-OPEC might raise production, as well as the weekly supply report, the biggest threat to the price of crude oil and the global economy may be the lack of spare oil production capacity. Reuters reports that global spare oil production capacity could fall from more than 3% of global demand now to about 2%, its lowest since at least 1984, if OPEC, Russia and other producers decide to increase output when they meet on June 22-23. Some analysts say spare capacity could even fall below 2%, after years of low oil prices drove down investments in new production across the industry to a historic low.
A funny thing happened on the road to Singapore. The Group of 7 joint communique was agreed to by all nations until the Prime Minister of Canada Justin Trudeau made a statement after President Trump was on the plane going to try to rid the world of the North Korean regime’s nuclear weapons and said that “U.S. tariffs were kind of insulting” and he “will not be pushed around’ set off President Trump and his advisors.
The Organization of the Petroleum Exporting Countries (OPEC) backed from a strong commitment to raise oil production but only promised to work together and stressed the need for continued cooperation between oil producers, as opposed to signaling an actual number on an expected production increase.