Surprise Crude Inventories Draw Drives Oil Higher

West Texas Intermediate crude surged higher after crude inventories declined by almost 4 million barrels, indicating we could be seeing a tighter oil market. Crude prices are stabilizing after making a 5-week low and could see further upside if trade talks do not completely fall apart this week. Oil could see buyers return on spare capacity concerns. Geopolitical risks such as Russia’s oil contamination issues, Venezuelan and Iranian sanctions, along with fighting in Libya, could keep crude supported. The Canadian dollar was little changed on the day, not seeing any major benefits from oil’s rebound.

One key story that could greatly influence oil prices over the next couple weeks involves Iran. Iran’s partial withdrawal from a landmark nuclear deal is putting pressure on European and Asian nations to ease restrictions on their Iranian banking and oil sectors. Iran is giving Britain, France, Germany, China and Russia a 60- day deadline, otherwise they will remove caps on uranium enrichment levels and resuming work on its Arak nuclear facility. The US sanctions are having a strong impact to the Iranian economy which is expected to see their recession deepen.

European officials have been critical against President Trump’s decision to reimpose sanctions and ultimately end the accord that was reached under President Obama. If we see some support given to Iran, Trump may answer back with sanctions to countries who help Iran.

Over the next 60 days, we can see the Iran story either lead to further economic weakness to the Gulf Cooperation Council (GCC) or it could lead to a military clash. A growing risk could be Iran’s closing of the Strait of Hormuz, which handles about two-thirds of the world’s seaborne cargoes of crude oil and other petroleum liquids.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya