CRUDE OIL OUTLOOK: BULLISH
- Crude oil prices may rise on Fed Chairman Jerome Powell’s congressional testimonies
- US-China tariff reduction may amplify gains, but coronavirus impact may cap progress
- Easing or intensified US-Iran tensions at Munich Security Conference may rattle Brent
POWELL TESTIMONY MAY BOOST CRUDE OIL
Crude oil prices may rise after Federal Reserve Chairman Jerome Powell delivers two of his semimanual testimonies to Congress. The first will be on Tuesday, February 11 where he will speak about monetary policy to the House Financial Services Committee, and the second will be on February 12 in front of the Senate Banking Committee.
Both of these events will be closely scrutinized as traders gauge the varying degrees of confidence Mr. Powell expresses in his views on the strength of the US economy. He will likely cite muted geopolitical risks as a tailwind to the outlook with references to the trade truce between the US and China and reduced concerns of a no-deal Brexit. In this regard, he may then give a brightened outlook on growth and boost Brent.
Under these circumstances, chipper commentary may also deflate what are already-swollen Fed rate cut bets if the Chairman believes economic conditions do not warrant further stimulus. However, Mr. Powell may raise concern about financial stability in light of the central bank’s recent commentary on the so-called leveraged loan market that policymakers fear may be vulnerable in the case of a downturn. Read more about it here.
US-CHINA TARIFF REDUCTION MAY BUOY RISK APPETITE
As part of the so-called “Phase 1” agreement between the US and China, both sides will reduce tariffs in an effort to reduce bilateral tension. Having said that, other tariffs remain in place, and the prospect of a “Phase 2” accord will only be addressed after the US Presidential election. However, the outbreak of the coronavirus could complicate the US-China trade truce and put commodity-linked assets like Brent on the defensive.
Due to the growth-hampering nature of the Wuhan virus outbreak and its contagion across manufacturing hubs in mainland China, there is concern that they will not be able to fulfill their trade obligations to the US. This includes taking delivery of agricultural and petroleum-based commodities. However, there is a clause outlined in the agreement which may allow for some flexibility. It is unclear how the US will respond.
CORONAVIRUS MAY HAVE CONTAMINATED JANUARY ECONOMIC DATA
When the coronavirus outbreak was a novel risk that enthralled investors and led to a world-wide selloff in equities, Chinese oil demand is reportedly said to have plummeted 20 percent on news of a lockdown. Since then, numerous companies – like Nike and Hyundai – have also announced production delays due to the coronavirus’ “material” impact on Chinese operations.
As a result, weaker economic data stemming from panic about the spread and impact of the Wuhan virus may have dented economic statistics for January. Consequently, investors may see softer data for the month and worry about the global outlook. Crude oil prices may fall on these fears since weaker growth would mean less demand for vital inputs in the global supply chain – like Brent.
BRENT MAY RISE ON IRAN-US TENSIONS
On Friday, Secretary of State Mike Pompeo will be attending the Munich Security Conference with other attendees including Canadian Prime Minister Justin Trudeau and Iranian Foreign Minister Javad Zarif. In light of this year’s spike in tensions between the US and Iran, delegates from both sides may take the time to exchange words – the content of which may elicit volatility in crude oil prices.
Crude Oil Prices – Daily Chart
Crude oil chart created using TradingView
CRUDE OIL TRADING RESOURCES
— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter