Crude Oil Torn Between Iran Election, Coronavirus and G20 Summit

Crude Oil Torn Between Iran Election, Coronavirus and G20 Summit

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CRUDE OIL OUTLOOK: BEARISH

  • Crude oil prices may rise on Iran election if hardliners fill parliament, stokes political tensions
  • G20 summit may bruise crude oil prices if officials send chilling message about growth outlook
  • Coronavirus outbreak could trim gains in crude if analysts forecast a global slowdown from it

CRUDE OIL OUTLOOK BULLISH ON IRAN ELECTION

Crude oil prices will be closely watching the outcome of Iran’s parliamentary election as tensions between Washington and Tehran grow from sanctions and proxy attacks the US has accused Iran of orchestrating. Many see the upcoming vote as a referendum on the current administration whose voter base has grown frustrated with President Hassan Rouhani in the face of crippling sanctions and global isolation.

The disillusioned moderate voters – who constitute the bulk of the current administration’s support base – have expressed frustration with the economic circumstances and are calling for a nation-wide boycott of the election. Consequently, this increases the probability that the majority of the Parliament’s 290 seats will be filled with conservative hardliners.

Their ideological predilections more closely mirror that of the Guardian Council, Iran’s constitutionally-mandated 12-member legislative body. Their policy towards the US is comparatively more antagonistic than that of Mr. Rouhani’s, and as such, could raise the possibility of reignited stress. Consequently, the prospect of a supply disruption through escalated tensions could push crude oil prices higher.

Crude Oil Prices – Daily Chart

Crude Oil Chart

Crude Oil chart created using TradingView

CORONAVIRUS CONCERNS MAY TRIM CRUDE OIL GAINS

Financial markets continue to be held hostage by fear over the spread and impact of the coronavirus on global growth and how it may influence China’s economic dynamics. There are premonitions that a slowdown in Asia’s powerhouse could ripple out across the region and further disrupt supply chains and derail the recovery in global growth that was just beginning to show signs of stabilization.

JPMorgan global trade PMI

As the second largest consumer of crude oil, weaker demand out of China could further pressure crude oil which are still licking its wounds from the wounds after a politically turbulent two years. The spread of the coronavirus and rising death toll may begin to seep into key economic data – like PMIs – and infect sentiment of producers who may start thinking the outlook is not as bright as they had suspected.

Crude Oil and coronavirus

GLOBAL GROWTH UNCERTAINTY WEIGHING ON BRENT

“Uncertainty is becoming the new normal” IMF Director Kristalina Georgieva said at a conference last week, warning that the coronavirus is “a stark reminder of how a fragile recovery could be threatened by unforeseen events”. In this environment, growth-oriented commodities like crude oil will be under pressure as demand for a vital input wilts alongside expectations for robust economic growth.

Global economic policy uncertainty index

G20 SUMMIT MAY CAST GLOOMY SHADOW ON GROWTH

G20 Finance Ministers and central bank governors will be meeting in Saudi Arabia from February 22-23 where the main topic of discussion will be the cost and impact of the coronavirus on the global economy. Downbeat commentary there from officials whose views carry a high premium in market opinion could dampen sentiment and further pressure crude oil prices.

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

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