By Ebrahim Fallahi

Worries over global economy outweighs geopolitical factors in setting oil prices

April 10, 2019 - 21:46

TEHRAN – The upward trend of the oil prices in the market hit a stop point on Tuesday when the International Monetary Fund (IMF), once again, poured cold water on the hopes of oil traders who were getting optimistic about global demand this year.

Oil prices rallied to their near six-month highs over the past three weeks pushed by a series of mostly geopolitical factors.

Growing conflicts in Libya and worries over a disruption in the OPEC member’s supply, the impact of U.S. sanctions over Venezuela’s oil output, OPEC assurance over the compliance with the cuts and a growing optimism over the future of the U.S.-China relations were the top drivers of the prices in the mentioned weeks.

However, the IMF report on Tuesday once again casted the shadow of doubt over the oil market which clearly hasn’t been that sure about many of the above mentioned factors.

The IMF set the forecast for this year’s global economy growth at 3.3 percent down 0.2 percent from its previous outlook of 3.5 percent, which was also a downgrade.

What is interesting is the fact that despite all the positive signs regarding the U.S. and China’s economic relations, the IMF cites the risk of increasing trade tensions as one of the reasons for this downgrade.

The IMF report also warned that growth could slow even further due to intensifying trade conflicts and the probability of problems emerging in Britain’s separation from EU.

It seems that the fund is not solely concerned about the trade relations between the U.S. and China and Brexit as well as a growing trade tension between EU and the U.S. also affected the estimations.

Earlier On Monday, the Washington announced it’s considering $11 billion worth of tariffs on a variety of goods in response to illegal subsidies the EU granted to Airbus.

On Tuesday Reuters reported that Brent crude fell 49 cents to $70.61 a barrel, after hitting $71.34, its highest since November.

It is the third consecutive time that IMF is downgrading its forecasts of the global economy citing similar reasons. Consequently, the concerns over a slowdown in global oil demand this year has hit crude prices several times and is considered a determining factor for the oil prices.

Another angle from which the oil prices were pulled down was the Russian President Vladimir Putin’s remarks on his country’s willingness to end the cuts deal when the OPEC+ meets in June.

“We are ready for cooperation with OPEC in decision-making ... But whether it would be cuts, or just a stoppage at the current level of output, I am not ready to say,” Reuters quoted Putin as saying in an Arctic conference in St. Petersburg on Tuesday.

Rising U.S. crude production and inventories is also another faltering factor, weighing on the market.

It seems that, considering the recent developments, suddenly there are cracks appearing in some of the main pillars which are holding the oil prices ceiling.

The market which was breaking records in the past few weeks, is, once again, forced to crawl back to a state of wait and see. Apparently in the upcoming weeks, in the absence of any extreme geopolitical incident, the market would be experiencing more of this downward trend, since obviously the bear factors are outweighing bull ones this year.


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