The oil market has seen some increasing volatility the past couple weeks as traders worried over a global recession. The decline in oil prices last week could, however, lead to supply cuts that could keep the market from falling much further. While oil prices sank over 4 percent last Wednesday as prices hit a 7-month low, they’ve since bounced back over 11%. Last week’s declines came on the heels of recent selling pressure that has been attributed to a surprise build up in crude stocks and concerns over demand amidst the escalating U.S./China trade war.
According to a recent article from CNBC, U.S. Government data showed a build of 2.4 million barrels in U.S. stockpiles. This was in stark contrast to the 2.8 million barrel draw that analysts had been expecting. The article went on to state that crude supplies are running 2 percent above their five-year average for this time of year. The data clearly caught the market off-guard, and only added to increasing concerns about demand.
Oil prices have risen as hopes for production cuts are on the rise and as the yuan stabilized after a very volatile week. Both Brent and WTI rebounded on the stronger-than-expected official fix in the yuan, which alleviated some of the fears about a full-blown currency war. Crude oil prices have also been trading higher on the first trading day of the week, tacking on more than $2.00 per-barrel.
The type of see-saw price action seen the past week could potentially continue. Any fresh developments on the trade war could affect the oil market, and changes in the dollar index could also influence prices. Although the market has seen a boost, some analysts have suggested that it could be pricing in a significant and multi-year breakdown in U.S./China economic relations.
There is also the issue of Iran and the Strait of Hormuz. According to a recent article from the nypost.com, the U.S. Maritime Administration has issued a fresh warning for vessels operating in the area. The Iranian Revolutionary Guard has reportedly detained a ship for the third time in recent weeks in the area, and military action could still be an option of last resort. As a key, strategic global chokepoint for crude oil, any disruptions of oil flowing through the region could potentially send prices sharply higher.
According to oilprice.com, Saudi Arabia reportedly reached out to other producers this week to discuss the slide in oil prices and potential measures to be taken. Saudi Arabia also reportedly said that despite healthy demand, it would keep its exports below the 7 million barrel per-day mark at least through September.
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