(18 OCTOBER 2017)DAILY MARKET BRIEF 1:US inventories to decline for a fourth straight week

Crude oil prices extended gains on Tuesday with the WTI and Brent rising 0.50% and 0.80%, respectively, amid mounting geopolitical tensions and shrinking oil inventories. Donald Trump officially withdraws his certification of Iran compliance deal and leaves the fate of the nuclear deal in the hand of the Congress. After being unable to export its oil production for several years, international sanctions against Iran have been lifted last year, allowing the country to ramp up production. This increasing in supply coupled with building US stockpile clouded the outlook for oil prices.

The recent geopolitical tensions, more specifically in regarding the Iran deal and Kurdistan-Iraq situation, have provided a fresh boost to oil prices and sent both gauge to test multi-months highs. The Brent even surged to its highest level since July 2015 as it tested $59.05.

In addition, the contraction in US crude oil inventories accelerated recently. After shrinking by 2.7mio barrels last week, inventories are expected to contract by 3.25mio barrels which would be the fourth week in a row. Finally, the decline of US rig counts also weights on the supply.

The crude oil price outlook is quite uncertain as a lot of variables have to be taken into consideration. Although the Kurdistan-Iraq situation will only have short-term impact on crude oil prices, the potential reinstatement of sanctions against Iran will have longer-time effects. Against such a backdrop, we remain cautious regarding the oil price outlook. There are many clouds on the horizon and we do not rule out a reversal in the short-term.

By Arnaud Masset