When a number of bullish news is already taken into account in prices and market attention shifts to the escalation of the US-Chinese trade war that threatens to undermine global oil demand, the growth of bearish prices by 39% for WTI in the week to May 7 looks logical. Speculators increased short-selling at the fastest rates over the past 8 months against the background of Donald Trump's angry tweets with threats in the form of an increase in tariffs from 10% to 25% of $200 billion worth of Chinese imports. They were brought to life, therefore, you should not be surprised at the fall of black gold to the area of 6-week lows.
Dynamics of speculative positions on oil
China is the largest consumer of raw materials worldwide, thus, the slowdown in its economy is rightly viewed as negative for Brent and WTI. If in April-September 2018, the Celestial Empire imported 60.5 million barrels from the States, the figure dropped to a ridiculous 1.64 million barrels in October-March. For four of these six months, there were no purchases at all.
Dynamics of American oil imports to China
The intention of the White House to impose tariffs on all Chinese imports will not pass smoothly for the US economy. UBS estimates that it will lose 0.75-1 ppt. over the course of a year, while US stock indexes will collapse by two digits. The trade war will create even more problems for China and the closely related eurozone and Japan. As a result of the global economic slowdown, global oil demand will be severely affected. The speculators felt it very subtly but failed to take into account the surprise from the Middle East.
Four tankers were attacked in the Persian Gulf, two of them belonged to Saudi Arabia. Iran has repeatedly threatened the United States to block the Strait of Hormuz, through which about 40% of the international trade in black gold goes. All exports of oil from Kuwait, Iran, Qatar, and Bahrain while 90% of deliveries from Saudi Arabia and Iraq, and 75% from the UAE are associated in this area. The escalation of the conflict is fraught with serious disruptions in the sphere of supply, which will throw up prices. However, until the investigation is over, the market prefers to regain the factor of the US-Chinese trade war. The United States naturally accuses Iran of an attack, but first, we need evidence. Second, it's not a fact that the attacks will continue.
The bulls have not yet managed to play their Trump card and the initiative has returned to the bears. The worst daily peak of US stock indices from December-January was backfired by a decrease in Brent futures quotes to the 6-week bottom area. If the US dollar also remembered its exploits in 2018 when it took the status of the main asset-seeker from the Japanese yen and gold against the background of trade wars then the positions of Brent and WTI would be unenviable. So far, the "American" feels uncomfortable as the increase in geopolitical risks increases the likelihood of a Fed rate cut.
Technically, only the output of North Sea-grade quotes outside the consolidation range of $68.45 to 72.75 per barrel will allow determining the direction of further movement.
Brent daily chart
