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The Aftermath of the Qatar Ultimatum

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The ultimatum that Saudi Arabia and its allies gave to Qatar expired on Monday, and the leaders of the nations participating in the “diplomatic blockade” gathered in Cairo yesterday to discuss the answer by the Gulf state. Investors all over the world were watching carefully, as the event had the outside chance of a significant risk event, with the Irani-Saudi-Turkish power struggle being in the background of the chain of events. The crude oil and natural gas markets are in the forefront of the crisis as well, and the prices of those crucial commodities were closely following the events in the past few weeks.

Qatar Calls the Bluff?

As Qatar dismissed the demands of the Saudi alliance, the blockading nations faced a situation where they needed to show strength without triggering anything that they didn’t want in the first place. Yesterday they decided to “maintain the sanctions” but did not escalate the crisis for now, despite stating that they would take further steps in the appropriate time, and saying that Qatar’s answer lacked any substance whatsoever.

We would say that Qatar “won” this round by reading the signs well, as the superpowers verbally intervened, trying to calm tensions and avoid a regional conflict that could destabilize the energy complex and the whole Middle East. That might be the reason of this kind of pointless ultimatum that first seemed to be a “casus belli” for more drastic measures.

The Oil Price Tango of Saudi Arabia

The OPEC’s oil production cut, that was aimed to stabilize the energy segment is still in jeopardy, as Iran is one of the most crucial players in the deal, as the country is still in the ramp-up phase following the lift of the Western sanctions. On an interesting note, it was precisely Saudi-Arabia who launched a price war against the shale industry in 2016, driving crude prices down below $30 per barrel. Now the kingdom got an unexpected help from the global central banks, in the form of rising yields, as the leveraged players in the rising shale industry already started to curb their expansion as credit conditions started tightening.

What Happens Next?

Oil already staged a strong rally in the face of the risk-off shift of the last few days suggesting that investors are removing their worst case scenario bets that would be the collapse of the fragile OPEC deal. That said, we expect oil to remain rangebound in the coming months, as the supply situation is only partly determined by the OPEC, and the slightly shaky shale industry still gives a flexibilty to global production that was impossible in the previous decades. The 4-week production average of the US tells the story, as in the last couple of years the output

The 4-week production average of the US tells the story, as in the last couple of years the output remarkably followed the moves in the price of oil, while before that there was a very low correlation. That fact should cap the price of the crucial commodity and it is unlikely that we see the per barrel price go over $60 anytime soon, barring a full-blown default wave in the sector.

Who Will Rule the Middle East?

The more pressing issue for the world is the question of the precarious balance of the region that could turn upside down if oil and natural gas prices remain “lower for longer”. With the new leadership of Saudi Arabia, the strong but politically divided Turkey, and the recovering Iran all in for dominance, the Qatar crisis might be an important step towards a solution- for better or worse. But for now, the imminent threat of a major conflict seems to be low, and that could cause a sigh of relief across the globe.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Commodities

Oil Prices Drop amid Large U.S. Stockpile Accumulation, Saudi Backlash

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Oil prices extended losses on Wednesday after U.S. government data showed a bigger than expected rise in weekly crude inventories, possibly signaling a slowdown in demand for the world’s largest economy. Meanwhile, pressure on Saudi Arabia mounted as the kingdom launched an investigation into the disappearance and likely death of a prominent dissident.

Oil Prices Continue Lower

The West Texas Intermediate (WTI) benchmark for U.S. crude futures reached a session low of $69.63 a barrel on the New York Mercantile Exchange. It was last seen trading at $69.80 a barrel, down $2.12, or 3%.

Brent crude, the international futures benchmark, bottomed at $79.17 a barrel on London’s ICE futures exchange. The futures price was last down $1.75, or 2.2%, at $79.66 a barrel.

A rising U.S. dollar placed downward pressure on commodity markets, which are largely denominated in the greenback. The U.S. dollar index (DXY), which tracks the performance of USD against a basket of six rivals, rose 0.4% to 95.41.

Stockpiles Surge

U.S. commercial crude inventories rose by 6.5 million barrels in the week ended Oct. 12, nearly three times higher than expected, according to the Energy Information Administration (EIA). The official figures contradict earlier data by the American Petroleum Institute (API), which showed a 2.1 million-barrels drop during the same week.

The U.S. imported an average of 7.6 million barrels of crude last week, data showed.

Despite the recent spike in commercial stockpiles, the market for commercial crude is expected to remain tight as the U.S. ramps up sanctions against Iran. A sharp drop in Iranian exports could propel crude prices higher in the medium term, with some analysts eyeing a return to $100 a barrel next year.

Saudi in the Spotlight

Saudi Arabia has faced a global backlash following the disappearance of Jamal Khashoggi, who was last spotted entering a Saudi consulate in Istanbul, Turkey. Although Saudi authorities have denied any involvement – sentiment that was shared by U.S. President Donald Trump – Turkish and American press have reported gory details of Khashoggi’s death.

Turkish officials have reportedly obtained audio recordings that prove Khashoggi was beaten, killed and dismembered at the consulate.

The Saudis have vowed to retaliate against Western critics who link Riyadh to the killing, including business leaders who are considering cutting ties to the kingdom. According to analysts, the oil-rich kingdom could slash crude exports by 500,000 barrels a day should the U.S. or any other nation pursue sanctions.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 648 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Gold Prices Approach Three-Month Highs as Fundamental Risks Weigh

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The price of gold continued higher on Tuesday, as the combination of rising interest rates, looming U.S. midterm elections lifted demand for safe havens. However, upside could be capped by rebounding stock prices as U.S. markets opened sharply higher. The yellow metal has rebounded 4% over the past eight days.

Precious Metals Rise

Precious metals were higher across the board, with gold futures resuming their climb above $1,230.00. December gold, the most actively traded futures contract, rose $4.90, or 0.4%, to $1,235.20 a troy ounce on the Comex division of the New York Mercantile Exchange.

Silver futures followed a similar trajectory, rising 10 cents, or 0.7%, to $14.83 a troy ounce, the highest since Aug. 28.

The U.S. dollar, which often trades inversely with precious metals, declined for a fifth time in six sessions. The dollar index fell 0.2% to 94.86, a new three-week low.

Fundamentals in Focus

Rising bond yields have put a damper on risk appetite in global stocks, helping to engineer one of the biggest declines of the year. In China, equity markets are down a whopping 23% this year, with the latest selloff only exacerbating a volatile climate for investors. The benchmark Shanghai Composite Index fell a further 0.9% on Tuesday.

China is at the center of a global trade controversy after U.S. President Donald Trump invoked heavy trade tariffs on the country. Last month, the Trump administration implemented additional duties of 10% on $200 billion of Chinese goods. Although Beijing has responded, its massive surplus with the U.S. means it won’t be able to match Trump’s tariffs dollar-for-dollar. The International Monetary Fund (IMF) expects trade hostilities will contribute to slower economic growth in the U.S., Chinese and global economies next year.

Europe is also in the spotlight as investors await the details of Italy’s forthcoming budget. Rome’s new government on Tuesday submitted its budget to the European Union for review. The plan reportedly pushes Italy’s deficit to 2.4% of GDP, which is well above the EU’s guidelines and sets the stage for further clashes with Brussels.

Meanwhile, U.K. Prime Minister Theresa May has called for political unity after securing the backing of cabinet for her Brexit negotiating strategy. May is expected to press EU leaders to unblock stalled negotiations after European lawmakers ditched plans to publish a draft declaration on the bloc’s future trade deal with the United Kingdom.

Wall Street Opens Higher

U.S. stock markets were trading higher after the opening bell on Tuesday, with technology shares leading the rally. The large-cap S&P 500 Index was up 0.7%, with all 11 primary sectors reporting gains. The tech-heavy Nasdaq Composite Index shot up 1.1%. Dow industrials rose more than 200 points.

U.S. equities faltered Monday afternoon after a back-and-forth session. The major indexes are coming off their worst week since February with losses ranging from 3.7% to 4.2%. The selloff triggered a massive spike in volatility, with the CBOE VIX reaching six-month highs.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 648 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Crude Prices Mixed as Saudi Arabia Threatens Oil as a Weapon

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Oil prices traded modestly on Monday after Saudi Arabia threatened to retaliate against punitive measures tied to the disappearance of Jamal Khashoggi, a Washington Post columnist who was also one of the kingdom’s most vocal dissidents.

Oil Markets Creep Higher

A combination of geopolitics, supply constraints and a weaker dollar lifted commodity prices at the start of the week. U.S. West Texas Intermediate (WTI) crude rose by as much as 1.9% on Monday, hitting a high of $72.70 a barrel. The contract would later reverse course to trade 0.3% lower at $71.20 a barrel in New York.

ICE Bent, the global crude benchmark, peaked at $81.92 a barrel. At press time, it was down 0.1% at $80.32 a barrel.

The U.S. dollar, which often trades inversely with commodities, fell 0.2% against a basket of currencies. The DXY dollar index is currently trading at 95.02.

Khashoggi Disappearance

Saudi Arabia is facing an international backlash over the disappearance of Jamal Khashoggi. The columnist was last seen entering the Saudi consulate in Istanbul, Turkey on Oct. 2 before disappearing. Turkish news outlets say they have evidence linking the Saudis to his disappearance.

According to Sabah, a pro-government newspaper, the moments of Khashoggi’s “interrogation, torture and killing were audio recorded and sent to both his phone and to iCloud.” The newspaper said conversations of Khashoggi’s killers were also recorded.

U.S. President Donald Trump will send Secretary of State Mike Pompeo to Saudi Arabia to discuss the situation with Crown Prince Mohammad Bin Salman. Trump tweeted on Monday that the King denied having any knowledge of Khashoggi’s whereabouts.

“Just spoke to the King of Saudi Arabia who denies any knowledge of whatever may have happened ‘to our Saudi Arabian citizen.’ He said that they are working closely with Turkey to find answer. I am immediately sending our Secretary of State to meet with King!” he said.

Economic Retaliation

Trump has warned of grave consequences for Saudi Arabia if evidence emerged that the kingdom was responsible for Khashoggi’s disappearance. However, the president stopped short of threatening to block major arms deals to the kingdom as that would undermine U.S. jobs.

For the first time in 45 years, the Saudi regime has threatened to use oil as a political weapon to deter the West from attacking its economic interests. The Saudis issued a statement that the king plays “an influential and vital role in the global economy,” which is an implicit reference to its abundant oil wealth.

Following the disappearance of Khashoggi, several top business executives have pulled out of a high-profile Saudi investment conference, setting the stage for a bigger global backlash against the kingdom. According to CNN, the heads of J.P. Morgan Chase, Ford and BlackRock have cancelled plans to attend the summit.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 648 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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