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Forget The Middle East – This Is The Real Threat To Oil

Oil prices continued to fall this week as the US and China stoked concerns that the two sides will fail to cooperate on a trade deal anytime soon. On the US side, officials moved forward with plans to limit capital flows into Chinese markets and continued efforts to blacklist certain Chinese businesses. On the Chinese side, leadership used media outlets to suggest that a trade deal was unlikely anytime soon and that the coming meeting this Thursday between US and China trade officials was unlikely to accomplish much.

As macro negativity spread Brent crude sank to $58 while WTI dropped to $52.50. Both grades have lost more than $5 in the last two weeks with US/China concerns driving prices. Meanwhile, equity markets were also hit hard with the S&P 500 trading near 2,900 for a 3% loss over the last month mirroring losses in the Shanghai Composite. The US 10yr yield traded near 1.50% and the US Dollar held recent losses against the Yen and Euro following recent weakness in manufacturing and services data.

In physical markets, the news was equally bearish as a drop in the front 1-month Brent spread to +40 cents seemed to corroborate claims from Saudi Aramco that output from the Kingdom would rapidly return to full capacity following the recent production attacks. However, political unrest in Iraq- where massive protests have taken root in Baghdad- could add some bullish pressure as protests have turned violent and there are even whispers that Iran is quietly stirring…




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