Oil prices to fall

Why Oil Looks Set to Tumble this Month

If you’ve been doing any driving of late, you’ll have noticed an unwelcome sting.

Petrol is closing in on a record-setting AU$1.70 a litre. That’s partly due to the currently weak Aussie dollar and partly due to the artificially elevated oil price.

West Texas Intermediate crude oil is US$76.20 per barrel. Brent crude is US$86.29 per barrel.

You can see the continuing rally in crude futures (WTI is the white line and Brent is the blue line) below:

Crude oil futures prices 2017-2018

Source: Bloomberg

As Bloomberg  notes, WTI futures are now close to a four-year high:

West Texas Intermediate for November delivery rose $2.05 to $75.30 a barrel on the New York Mercantile Exchange, the highest settlement since Nov. 24, 2014.’

So far, the oil bulls have been on the right side of this trade. Pointing to the supply losses from Iran and Venezuela and a reduced US rig count, some traders are again predicting US$100 per barrel of crude.

But we think that’s too bullish by far. In fact, we see oil taking a big tumble in October.

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Yes, the latest Baker Hughes rig count shows the number of US onshore rigs targeting oil fell last week. But the number is rather insignificant, down from 866 to 863. Similarly, the rig count in the Permian Basin fell from 488 to 486.

Hardly market-moving figures.

Of far more significance is the following, also from Bloomberg:

Following Trump’s most-recent criticism of the Organization of Petroleum Exporting Countries over high prices, the president and the Saudi king talked on the phone Saturday about a strategic partnership and global economic growth, Al Arabiya TV reported, without providing more details. The White House said “issues of regional concern” were discussed.

The picture here isn’t complicated.

Trump wants lower oil prices before the 6 November US midterm elections. The Saudis (and Russians) have the capacity to deliver that by ramping up production. The Saudi ruling class is highly dependent on the US to provide the regional stability that helps keep them in power.

We don’t know what ‘issues of regional concern’ Trump discussed with the Saudi king in their phone call. Though at a campaign rally in Mississippi on Tuesday, he told the crowd he’d said, ‘King, we’re protecting you. You might not be there for two weeks without us.

How’s that for some pressure? And world leaders have learned the hard way that Trump is far from all bluff.

When Saudi Arabia opens the crude taps to placate the Donald, as we expect, the oil bulls will be rushing for the exits. And if the Aussie dollar doesn’t lose any more ground, you can expect some relief at the bowser.

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Bernd Struben

Bernd Struben

Bernd Struben is the lead editor at The Australian Tribune. Bernd makes use of his extensive network to bring you the top stories you need to know about each day. Stories the mainstream may miss. Or bury somewhere you’re unlikely to ever read them. Bernd studied aerospace engineering and journalism at the University of Michigan, before graduating with a degree in economics. Over the past two decades he’s worked in media, management, and finance in the US, the Caribbean, Europe, and Australia. His other role, as the editor of the Port Phillip Insider, puts him in a unique position to read Australia’s most exclusive financial advice. Some of which he shares with readers of The Australian Tribune for free.
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