UK Oil

12:42, 10 May

Settles Under Key $71 Level as Trade Fears Weigh

In the last few weeks oil has eased lower from six months highs above $75.50 down below the current key $71 level. Prior to the fall, oil had surged higher to reach its highest level in six months as it has comfortably moved past the key level at $71 after meeting some resistance at that level. Surprisingly this level didn’t provide much support in the last few weeks as it has now been broken back through. 
In the last month, oil has found solid support from the $71 level however this has given way in the last week or so.

Throughout February and March oil was trading in a narrow range meeting resistance at another key level of $68 and did well to finally surge higher through this level earlier last month. The $68 level will sit on the sidelines and possibly be called upon to offer some support should oil decline from its current levels. It has dropped sharply a few times in the last few months, however it has enjoyed a very solid start to the year rallying from 16 month lows below $50 at the end of last year, back up to the key $58 and $71 levels and beyond, after its doom and gloom to close out 2018.

The $68 level has played a significant role in the last few months which is why it may provide some support in the near future. Starting at the beginning of October, oil fell sharply from its multi-year high above $86 down to its lowest levels in 12 months below $58 at the end of November before falling lower to 18 month lows in late December. Oil has certainly turned this powerful selling around regaining much of the lost ground to close out last year.

Oil has continued to be influenced by several external factors, mainly ongoing concerns about global growth and where the global economy is heading, as well as Organization of the Petroleum Exporting Countries (OPEC) supply cuts. However more recently, oil prices have suffered to the ongoing trade talks between the United States and China. However according to the latest International Monetary Fund (IMF) report, the impact of U.S. sanctions on Iran's economy is spilling over into the broader region. The IMF forecasts a 1.7% contraction in the output of goods and services for non-Gulf Cooperation Council (GCC) oil exporters, after already having shrunk by 1.1% last year. "This is mainly driven by developments in Iran, where the recession is expected to deepen, reducing projected growth by almost 10 percentage points during 2018–20," the IMF reported in its 2019 Regional Economic Outlook: Middle East and Central Asia Update. A senior IMF official said that inflation in Iran could reach as high as 40% or higher this year. "Clearly the re-imposition of sanctions and the removal of the waivers will have additional negative impact on the Iranian economy both in terms of growth and in terms of inflation, where inflation could reach 40 percent or even more this year," an IMF official said.