February 18, 2019

Oil nearing $80 per barrel

Oil prices are edging up towards $80 per barrel. What is driving it up? There are a few key factors.

“Supply concerns are top of mind after the United States left the nuclear deal. Uncertainty prevails about the sanctions the United States will re-impose and about the reaction of the nuclear agreements other signatories, including Europe, China and Russia. Europe confirmed its commitment to the deal yesterday, and appears to be preparing itself to safeguard its business against US measures. China too so far showed little willingness to comply with US demands. With Saudi Arabia and other key producers signalling their readiness to offset any export disruption, we believe that the risk of a meaningful supply disruption is small,”said Norbert Rücker, Head Macro & Commodity Research, Julius Baer.

Global oil market supplies remain tight. US shale oil production continues to grow robustly but struggles to offset rising global demand and collapsing oil output in Venezuela. US crude oil inventories declined last week according to official data reported yesterday, lending tailwinds to oil prices. Exports were exceptionally strong and climbed to 2.5 million barrels per day, which exceeds the levels of petro-nations.

According to Rucker, The geo-political noise and escalation fears are here to stay. For investors, there are large upside and downside risks.

“As a result of the price surge in the last weeks, we lift our price targets to $72.5 (3 months) and USD 65 per barrel (12 months). That said, at todays price levels, the uncertainty and fear factor seem more than adequately reflected,” said Rucker.

Original Article

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