Commodity Update: Crude Oil – 29 August 2014
Oil benchmarks rose this week amidst a dramatic escalation of conflicts across the globe and a flood of better than expected economic data from the US.
In detail, the week saw yet more acts of savagery from insurgents in Iraq and Syria prompt further calls for action from the international community. This was while reports continued to emerge of Russian involvement in Ukraine and an open display of support, from Vladimir Putin, for rebels in the eastern region led US government officials to call for more sanctions.
In addition to supply concerns emanating from conflict risks, the demand side of the equation for oil prices also shifted during the week. This was as a rapid acceleration in durable goods orders, higher consumer confidence and upward revisions to GDP in the US each led investors to increase bets on global growth for 2014.
In short, we believe that the week’s events indicate that the weakness in oil prices seen during August has run its course and that prices have now bottomed. Looking ahead, we expect a period of recovery for oil prices as conflicts in the middle east and Ukraine continue to escalate, while the growth outlook for the US economy continues to brighten.
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