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Bearish week for oil prices in a largely bullish environment.

Published Monday, July 21st, 2014

What was generally a less-than-convincing week for oil prices ended on an even more sour note, as the futures market settled lower on Friday. It appears that the immediate concerns regarding the consequences of the downing of the Malaysian plane were swept aside. There were no fears about further sanctions that would further cripple the Russian economy and would set back domestic oil production. The relaxed mood came despite the fact that the international community is now firmly accusing Russia to have at least an indirect involvement in the tragedy. The Institute of International Finance warned that further sanctions would have “a chilling effect” on Russia as the country’s companies would find it nearly impossible to raise foreign capital.

Despite bullish developments overwhelming bearish ones last week, only WTI managed to finish the period in positive territory – up 2.28%. The US benchmark was greatly aided by the big draw in crude oil inventories which included falling stocks at Cushing. September Brent lost 0.02% as Libyan oil production is on the rise. It has had a more serious impact on the Brent structure than on flat price as the September/October spread fell to -48 cents/bbl after Libyan export ports were handed over to the government only to see it rally to -5 cents/bbl in the immediate aftermath of the Malaysian plane crash, but settled back at -24 cents/bbl on Friday.

This weakness might have partly been due to the agreement between Iran and the six nations on Friday afternoon to extend nuclear talks by another 4 months. It is bearish for Brent because during these 4 months Iran will get an additional $2.8 billion of frozen assets. Sanctions that had been lifted last November will remain lifted. Whilst both the Libyan and the Iranian developments are negative for oil prices we should not forget the massive geopolitical tension in Israel (the Gaza ground offensive intensified over the weekend), Iraq and Russia. One can only wonder when the underlying bearish sentiment will turn.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.