Crude Oil: Opposing drivers make short-term outlook very uncertain

Below we have highlighted some of the current factors which are helping to create a very confusing outlook for oil. 

Supporting crude oil drivers:

– Tightening markets due to voluntary and not least involuntary production cuts. 
– This tightness is reflected in the rising backwardation in Brent despite weak prompt prices. 
– Russia’s pipeline contamination, cutting supplies to Europe
– Iran’s threat to stop observing restrictions on uranium enrichment
– US moving aircraft carrier to Middle East on credible Iran threat
– Record imports last month from China, the world’s biggest buyer
– Fighting around Tripoli, Libya’s capital, raising risk to supplies from Opec’s most volatile producer

Non-supportive drivers:

– Risk of failed US-China trade talks prompting a global economic slowdown
– Stock market weakness and surging VIX reducing general risk appetite
– Hedge funds caught on the wrong side following the recent correction

WTI crude oil touched $60/barrel and the bottom of the current channel on Monday. Using Fibonacci retracement levels the next level of support can be found at $57.3/b ahead of $54.5/b.