- Crude oil prices may gain on supply-disruption fear over Iran political risk
- Poor reading in China GDP data could overwhelm Brent and reverse gains
- Selling pressure may be compounded by the publication of inventory reports
Crude oil prices may oscillate between political risks emanating from Iran and fears about the current trajectory for global growth. The latter will likely overwhelm gains made in Brent over politically-induced supply disruption fears and will ultimately make the cycle-sensitive commodity succumb to selling pressure and extends its decline.
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Political tension between Iran and the US has been alarmingly high in recent months after oil tankers in the Gulf of Oman were attacked shortly before the Revolutionary Guard shot down a US drone. Diplomatic relations may further sour after news broke that Tehran had violated its uranium enrichment levels. An aggressive response from Washington could be expected which may be a boon for crude oil prices.
Early next week, EU foreign ministers will be convening in Brussels to discuss Iran’s deviation from complying with the 2015 Join Comprehensive Plan of Action (the Obama-era denuclearization deal abandoned by the Trump administration). European officials have been attempting to preserve the accord by providing economic aid to Iran in the form of a Special Purpose Vehicle that allows non-US Dollar denominated trade with Iran to alleviate the impact of US sanctions.
WILL CHINA GDP IMPACT CRUDE OIL PRICES?
As the second-largest economy and consumer of crude oil, China’s publication of second-quarter GDP data will warrant traders’ attention. Despite the US-China trade truce at last month’s G20 summit, the Asian economy is struggling to grow against the backdrop of unfavorable external demand. If the report underwhelms, it will likely send a chilling message to global financial markets and may pressure crude oil prices.