Raised Geopolitical Tensions & Fed Supporting Higher Oil Prices

Oil prices have continued yesterday’s rally during APAC trading today. They have been supported by a concurrent set of factors including increased geopolitical risks involving Iran, fifth consecutive weekly US crude stock drawdown, the market flashing oversold and a more dovish Fed Powell. After falling 0.6% on Wednesday, the USD index is slightly lower today supporting dollar-denominated commodities.

• Brent is up 0.9% to $81.53/bbl after rising 4.4% yesterday. It is off its intraday high of $81.64 as China’s manufacturing Caixin PMI for July fell to 49.8, after 51.8 and expectations of 51.5. The benchmark fell to $81.13 following the data, as oil markets continue to worry about the strength of China’s demand, the world’s largest crude importer.
• WTI is 1.0% higher at $78.68/bbl following Wednesday’s +5.2%. It rose to $78.74 and then fell $78.31.
• OPEC holds a review meeting today and while delegates have said there is unlikely to be a change in the intention to reduce output cuts in Q4, despite prices falling in July.
• Geopolitical tensions have risen with Israel reportedly killing the political leader of Hamas in Tehran. Iran’s Ayatollah Khamanei has called for a direct attack on Israel, according to the NY Times, while Israeli PM Netanyahu has cautioned that there are “challenging days ahead”. Iran is the 7^th largest global oil producer.
• EIA reported US crude inventories fell 3.44mn barrels last week, the fifth consecutive drawdown worth 27.6mn barrels.
• Later US jobless claims, July manufacturing ISM/PMI, Challenger job cuts and Q2 productivity/ULC print. The BoE decision is announced and a 25bp rate cut is expected. There are also European July manufacturing PMIs and euro area June unemployment.