The bulls have gained the upper hand in oil markets of late, with estimates of $90 oil before the end of the year. The driving factor behind this renewed bullishness is the re-imposition of sanctions on Iran that threaten to significantly impact Iranian exports. While this bullish sentiment is certainly justifiable, there are also plenty of bearish catalysts looming over markets that should not be ignored. The most important of these catalysts is the possibility of an all-out trade war between China and the U.S., an outcome that is very much plausible. Oil prices in the coming months are likely to be influenced most heavily by these two contrasting factors – with Iranian sanctions sending prices up while trade war escalations sending them down.
The U.S. and Iran saga has had a grip over oil markets for the last three months. Oil prices spiked in May when Trump announced that he was imposing sanctions on Iran and leaving the Joint Comprehensive Plan of Action (JCPOA). Now, as the first round of sanctions goes into effect, the relationship between Iran and the U.S. has become increasingly strained. The second round of sanctions, which is going to focus on the energy sector, will have a much higher impact than the current round. According to different estimates, sanctions could take anywhere from 1.5 to 1 million barrels out of the market. This combined with the recent worries about spare capacity and the ongoing tension in the Arabian Peninsula (between Yemeni Houthis and KSA) may well drive prices towards the much-hyped $90 mark. Read More