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Ignore oil price risk analysts

Oil prices have lost some of the profits from the oil tanker attack last week in the Gulf of Oman. Recession fears outweigh geopolitical tensions and the risk of delivery shortages.

"The oil price response to the recent escalation in the Middle East is comparatively cautious as 30% of global oil supplies pass the Strait of Hormuz and only a small fraction of that total can be diverted via pipelines in case of dispute," she wrote Commerzbank in a note. 19659002] Tensions between the US and Iran continue to increase. American officials say a military option is still on the table. On Monday, Iran announced it would increase uranium enrichment and possibly exceed the limits set in the 201

5 nuclear agreement to respond to US sanctions.

The likelihood of a renewed catastrophic war in the Middle East has been highest lately, but the oil markets are largely shying away from the risk and are focusing their attention on the worsening economy. Almost half of the CFOs surveyed by Duke University and the CFO Global Business Outlook see a recession by mid-2020.

With pessimism on the rise, oil has barely moved despite tensions between the US and Iran.

Hedge funds and others According to Bloomberg and CFTC data, money managers increased short-bets on WTI by 46 percent through June 11 through June. Traders clearly rely on an acidic economy. "Outside of the US, the world's unmistakable growth slows," said Bill O'Grady, chief strategist at Confluence Investment Management LLC, to Bloomberg. "The more trading tensions arise, the greater the likelihood that growth will be slow, and when Chinese growth slows down, it's not good for oil." In a new report, Bank of America Merrill Lynch lowered its forecast for oil demand growth this year to just 0.93 million barrels per day (mb / d) and 2020 to 1 mb / d. "Nevertheless, there is a risk that we will be too optimistic if US-China trade relations continue to deteriorate. Additional tariffs would probably force us to lower our numbers, "wrote Bank of America analysts. The investment bank lowered its WTI and Brent price forecasts for the second half of 2019 to $ 56 and $ 63, respectively, from $ 58 and $ 68, respectively. The downtrend will continue until 2020, with Bank of America forecasting an average of just $ 60 per barrel for Brent and a WTI of $ 54 per barrel for Brent.

"The reason for the drop in oil prices is that there is plenty of oil, and so are many commodities," said Tim Rudderov, who manages $ 1.5 billion at Mount Lucas Management LP, the Wall Street Journal.

The market is optimistic, but even deeper slide is possible Bank of America Merrill Lynch put it this way: "If Xi avoids the G20 and buys Iranian barrels, the price of oil rises to $ 40 "In this scenario, Chinese President Xi Jingping intervenes and opposes US pressure on tariffs, leading to yet another wave of US Treasury tariffs on Chinese imports, which is depressing the world economy and lowering oil demand They also decide to continue buying oil from Iran to withstand American pressure on sanctions, and in this scenario, Iran's oil exports are falling less than expected The result is an oversupplied market and an oil price drop below $ 40.

Subject to this extreme scenario, Bank of America stated that there are several factors that could support the recovery of the oil markets. First, the bank expects the US Federal Reserve to lower interest rates three times over the next 12 months. Then, of course, OPEC + will extend production cuts and help keep surplus oil off the market. After all, after the collapse of the global economy, the Trump government could resign from its trade war with China. Related: The "Polar Silk Road" could be a game changer for natural gas.

The first two factors – cuts in OPEC + and a weakening of the Fed – seem quite likely. However, Trump's trade war with China shows no signs of slowing despite the tide of bearish news. In the comments of the weekend, US Secretary of Commerce Wilbur Ross seemed to lower expectations of a breakthrough with China.

"I think most of what comes out of the G-20 states could be an agreement to actively resume talks." Ross said in a WSJ interview on Sunday. "At the presidential level, they will not talk about the details of enforcing a trade agreement."

could be resumed, "added Ross.

By Nick Cunningham of Oilprice.com

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