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Trade tensions, output rise to impact oil prices

Oil prices are likely to trend lower this week due to the rise in trade tensions as well as the ramping of oil production by major oil producers like Saudi Arabia and Russia, experts said.
Saudi Arabia, along with UAE, Kuwait and Russia, are increasing production close to one million barrels per day in line with an agreement reached between Opec (Organisation of the Petroleum Exporting Countries) and non-Opec members last month in Vienna.

The aim of the deal is to cool down oil prices, which have spiked to $80 (Dh294) per barrel in May following an increase in demand and geopolitical tensions in the Middle East, including US president Donald Trump’s decision to reimpose nuclear related sanctions on Iran.
“Trade tensions, which have been growing during the past three months, have increasingly led to worries that global growth and demand may suffer, especially among emerging market economies already challenged by the combination of a stronger dollar and a rising cost of servicing debt in dollars,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Easing of supply disruptions from countries such as Libya and Canada and reports that Saudi Arabia, UAE and Kuwait have already begun ramping up production and exports also led to drop in oil prices.

“Brent crude oil is likely to settle into a low 70s to low 80s range for now. The downside looks protected by the continued risk to supplies despite increased production from some Opec members and Russia.”
“Oil price of $80 per barrel has already proved a tough nut to crack and the trade war leading to lower growth narrative should continue to offer limited buying appetite above this level.”
Bearish outlook
Brent, the global benchmark fell by 0.34 per cent to trade at $74.29 per barrel when markets closed on Friday. US crude West Texas Intermediate was down by 1.32 per cent at $68.89 per barrel.
Ehsan Khoman, Director, Head of Mena Research and Strategy at MUFG Bank also predicted bearish outlook for oil prices in the medium-term due to re-emergence of oversupply in the market as well as higher shale oil production.
But, in the near term, there is an upside risks of Brent and WTI exceeding north of $85 per barrel and $80 per barrel, respectively, in the third quarter of 2018, depending on the magnitude and duration of supply disruptions, added Khoman.
Disruption risks mainly stem from threats of Iran to close Strait of Hormuz and temporary suspensions of Saudi and Kuwaiti oil shipments via the Bab Al Mandeb strait.
Saudi Arabia announced halting of oil shipments through the Red Sea shipping lane after an attack on one of its oil tankers passing through Bab Al Mandeb strait last week.

Source: Gulf News

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