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Crude up on Iran and China

Last updated 7/13/2012 12:30 PM ET (GMT -5) 0 Comments - Add your comment

It is turning out to be a better week for oil prices, or worse, depending how you look at it. Either way, barring a significant late sell-off, Brent and WTI are shaping up to end higher on the week. There are a number of factors that have played into this, not least the general “risk on” rally that is driving all commodities and equities higher today. This began with the release of China’s GDP release overnight. There was widespread relief that GDP came in at 7.6%, as last week’s surprise PBOC rate cuts raised fears of a sub-7.5% reading. But this was really a side issue, as other Chinese indicators covering house prices, electricity output, rail freight and new loans suggest that the economy continues to slow. Oil also pushed higher as the US identified a number of Iranian companies and ships which were helping Tehran to avoid sanctions. The move raises tensions between the two countries, and puts further pressure on Iran as it deals with the EU’s own sanctions which kicked in at the beginning of the month. The International Energy Agency estimates that Iranian exports have dropped by around 30%, or 700,000 barrels per day. However, Saudi Arabia continues to pump oil at record levels of over 10 million barrels per day, and the world is adequately supplied given current demand levels. Of course, if Iran can find alternative buyers for its oil then supply could outstrip demand. While sanctions have also hit at Iran’s ability to collect oil revenues, there is evidence that the country is managing to by-pass the international SWIFT payments system, and the dollar, by accepting gold for oil. Turkey is a major customer for Iranian oil, and its gold exports to Tehran rose 800% over the first five months of this year, according to “Turkish weekly.” Brent has now broken above resistance around $101. If it can hold above here, then its next targets to the upside are $104 followed by $108. There is resistance for WTI around $88.50 and support at $84 and $82.50.

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About The Author

David Morrison has worked in financial markets for over 25 years. He joined GFT in February 2009 to deliver commentary and research for derivatives products. Before then David had been instrumental in setting up two spread betting companies, managed trading desks, and implemented and ran successful risk-management strategies.

He has appeared on Bloomberg, Reuters, and Sky TV, and is widely quoted by financial newswires. He has written numerous articles covering economics and trading strategies using fundamental and technical analysis.

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