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03 October 2018, 04:39 | Joann Bryant
Oil Advances as Trump and Saudi King Discuss Market Stability
An earlier report from this site pointed out predictions from market watchers and financial analysts indicating the possibility that the oil trade restrictions slapped on Tehran might send the Middle East country into recession, with at least 3.7 percent implosion to take place next year.
Despite close coordination between the United States and Saudi Arabia on the issue of Iran sanctions, neither wants to be blamed for the escalation in fuel costs. In post-settlement trade, the contract continued to strengthen, rising to US$85.45 a barrel, the first trade above US$85 since November 2014. The sanctions forbid oil-importing countries and companies from buying Iranian crude, so this could put a squeeze on overall global supplies and make the commodity costlier. The market steadied after rallying in three consecutive sessions.
Saudi Arabia and Russian Federation have both pledged to increase production to make up for the loss of crude oil exports from Iran. With top traders seeing oil above $100 , speculation there may not be enough spare capacity is keeping investors nervous before American sanctions on Iran kick in next month.
The price of West Texas Intermediate (WTI) and Brent for November delivery increased by 3.49 and 4.97 percent, respectively, in the week ending September 28. The contract surged 2.8 percent to $75.30 on Monday. Total volume traded was about 52% below the 100-day average.
Worldwide benchmark Brent crude futures for December delivery dropped 0.6 percent to $84.43 per barrel, hovering just below its highest since November 2014 of $85.45-peak hit on Monday. Open interest in call options at US$90 has risen by almost 12,000 lots in the past week to 38,000 lots, or 38 million barrels.
"The [new Nafta] deal reduces the fear of significantly lower GDP and global growth due to tariffs and a trade war", said Kyle Cooper, a consultant at ION Energy. That's the lowest since February 2016. With sanctions due to resume on November 4, the sharp drop-off in supply from the Persian Gulf state has helped buoy crude oil prices. While trade tensions still remain, the deal caps a turbulent period the US and Canada, traditionally close allies on national security and trade.
The US is rapidly increasing its production. "It also eases some of the trade concerns that had persisted in the market". An oil analyst has said crude prices will touch $100 per barrel as producers have no means to stop such a spiral - something not seen since 2014. Off-topic, inappropriate or insulting comments will be removed.
With assistance from Stephen Stapczynski. All comments are subject to editorial review.
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