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The US and Iraq keeps the stock and oil markets strong

Published Friday, June 20th, 2014

A positive set of US economic data normally sweeps everything else under the carpet, which was precisely the case yesterday. US initial jobless claims fell to 312,000 during the week ending June 14, the manufacturing sector in the mid-Atlantic region expanded faster in June than expected and the Conference Board Leading Economic Index strengthened 0.5% in May all pointing towards a healthy US economy. When the US economy is considered healthy the S&P 500 index makes a new all-time high and the DJIA also gains. When US stock indices are on the rise, the rest of the world follows and the MSCI’s Global Equity Index also settled at its highest level ever.

When there is a war in an OPEC country that jeopardises oil output the fact that the IAEA sees Iran living up to its commitment to reduce its nuclear activities is casually side-stepped. When this happens Brent is usually stronger than WTI and that has been the case over the last few days. Yesterday the European benchmark gained 80 cents/bbl whilst its American counterpart closed 46 cent/bbl higher. The August WTI/Brent arbitrage settled just below $09/bbl. It is the lowest closing level since mid-March.

Fighting in Iraq is currently concentrated in the Northern part of the country whilst the majority of the oil fields are located in the south. Nevertheless, the relentless advances of the Sunni militants are best manifested in their attack on the country’s biggest refinery. Yesterday, the US President gave his strongest hint yet about possible intervention. This would come in the form of sending military advisors to Iraq or there may be air strikes against the insurgents, but he excluded the possibility of deploying ground troops in the Middle Eastern country.

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Posted by Tamas Varga

Tamas Varga has been in the oil industry since 1992 and with PVM for 18 years. During his time in the industry he has gathered a range of experience in the oil markets. At PVM Tamas is in charge of data collection and analysis.