UK Oil

09:38, 07 June

Rallies Towards $63 as IMF Warns about Trade Wars on Global GDP

Oil has rallied a little in the last couple of days however it is the price action from the previous few weeks that are of interest, when oil fell sharply from around the key $71 level down to its lowest levels in four months below $60. Throughout May it was easing lower from its six months highs above $75.50 to trade back around the $71 level, and despite it rallying a little back above this level. Prior to reaching the six month high, oil had met some resistance around the $71 level before breaking higher.
Of more significance is the $67 level which provided strong resistance earlier this year and subsequently supported oil a couple of weeks ago, however this level was strongly broken through on its way to the recent four month low. The $63 level may also provide some resistance should the rally continue, just like it did earlier in the year.

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.

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.

The International Monetary Fund (IMF) has warned that the trade war between the United States and China could wipe $455 billion off global GDP next year. Christine Lagarde, the IMF’s managing director, said in a briefing note for G-20 finance ministers and central bank governors that taxing all trade between the world’s two largest economies would cut global economic output by 0.5% in 2020, or $455 billion in gross domestic product to evaporate. This would be a loss larger than South Africa’s economy, it said. “There are growing concerns over the impact of the current trade tensions. The risk is that the most recent U.S.-China tariffs could further reduce investment, productivity, and growth. The just proposed U.S. tariffs on Mexico are also of concern,” Lagarde said in the blogpost. “Indeed, there is strong evidence that the United States, China, and the world economy are the losers from the current trade tensions,” she added. Lagarde went on to add that the “self-inflicted wounds” must be avoided “by removing the recently implemented trade barriers and by avoiding further barriers in whatever form.”