Commodity Update, Oil – 11 August 2014
Oil benchmarks see out another volatile week
Investor sentiment shifted into risk off mode once again this week, with safe assets outperforming risk, largely off the back of further escalations in both the Iraqi conflict and Russia/West dialogue.
Russia’s retaliation against western sanctions, in the form of its own bans upon the importation of certain foods from a range of nations, has given a clear indication of the likelihood of it making any concessions over Ukraine.
This while In Iraq, reports that the US government was considering air strikes and drops of humanitarian aid quickly converted to reports that US war planes had struck targets in the Kurdish region of the country.
As a result of these events, both Brent and WTI crude prices spiked during the week before falling back ahead of the Friday close.
Although the fundamental argument continues to see increasing supply weighing on prices over the months ahead, the threat of a further escalation in of a sanctions war between the west and Russia, as well as the potential for a protracted crisis/conflict in Iraq, continue to support expectations for elevated prices.
In addition to this, stronger momentum behind economic recoveries in the developed world also reinforces the demand side of the equation for oil prices. Consequently, we expect any further weakness in European and North American benchmarks to be met with firm offers over the weeks ahead.
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