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Weak Growth Outlook, Iran Sanctions Bring Volatility to Oil Markets

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Oil prices were under pressure on Wednesday, as traders grappled with the International Monetary Fund’s murky outlook on global economic growth.

Oil Price Update

Crude prices were down across the board midweek, with U.S. and international futures benchmark trekking lower. The U.S. West Texas Intermediate (WTI) benchmark fell $1.67, or 2.2%, to $73.29 a barrel on the New York Mercantile Exchange. Brent crude was down $1.62, or 1.9%, to $83.38 a barrel.

Despite the recent drop, prices will likely rebound in the near term as the Gulf of Mexico braces for Hurricane Michael, which is currently a Category 4 storm. Current forecasts suggest that the storm will miss the main production areas in the region, though major disruptions to economic activity are expected.

IMF Downgrades Global Growth Outlook

U.S.-China trade tensions and rising import duties are beginning to affect the global economy, according to the International Monetary Fund. The Washington-based lending institution this week lowered its outlook on global economic growth in the next few years, citing several risks to commerce.

The United States and China – the world’s two largest economies – saw their growth outlook slashed next year. IMF officials now expect the U.S. economy to expand 2.5% next year, down 0.2 percentage point from the previous estimate. Meanwhile, China’s GDP growth is forecast to slow to 6.2% in 2019 from 6.6% this year. That also reflects a 0.2 percentage point drop from the prior estimate.

“The impacts of trade policy and uncertainty are becoming evident at the macroeconomic level, while anecdotal evidence accumulates on the resulting harm to companies,” the IMF said in its latest outlook. “An intensification of trade tensions, and the associated rise in policy uncertainty, could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade.”

The fund now projects global growth to be 3.7% in 2019, down from 3.9%. Officials also predicted a downward trend in 2020 and beyond.

Extreme Volatility

BP’s chief executive has warned of “extreme volatility” in oil prices emanating from the resumption of U.S. sanctions on Iran. In a recent interview with CNBC, Bob Dudley said his firm is preparing for “45 days of extreme volatility” in the market where prices can go either way.

Dudley’s comments reflect wider concerns over the impact of Iran sanctions on global crude supplies. Exports from the Islamic Republic declined to 1.1 million barrels in the first week of October, down from 1.6 million in September, according to industry sources. Iran shipped as much as 2.6 million barrels per day in April.  Sanctions against the country’s oil industry will come into force Nov. 4, 2018.

Analysts warn that U.S. sanctions against Tehran could keep oil prices artificially high. Crude is expected to stay above $65 a barrel in the intermediate term and possibly returning to $100 by next year.

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 649 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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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.

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 649 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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Commodities

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.

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 649 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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Commodities

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 649 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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