Brent finally broke above the hallowed $70/bbl level, printing at $72.75/bbl at the time of writing. It appears $73/bbl may be the new $70/bbl, with the contract meeting resistance at this handle throughout this week. Nevertheless, it seems the market wants to remain supported above $70/bbl, with price action holding above this level despite a 7.7mb build in US crude oil inventories. Support also likely emerged from CTA stop-outs and negative gamma holders buying the futures contract to cover their options positions. Fundamentally, the market has shifted focus to the US President’s threat of tariffs on more nations, BRIC-by-BRIC. Mr. Trump has announced a 25% tariff on India, plus an unspecified penalty for buying Russian oil and weapons, “at a time when everyone wants Russia to STOP THE KILLING IN UKRAINE”. Mr. Trump also threatened a whopping 50% tariff on Brazil, citing retaliation for a political “witch-hunt” against ally Jair Bolsonaro. In other economic news, and much to Mr. Trump’s chagrin, the US Fed voted to leave rates unchanged at this week’s FOMC. The decision notably saw two dissenting votes for the first time in over 30 years. However, as stated by Michael Feroli, chief US economist at JPMorgan Chase & Co., the dissent may be more about “auditioning for the Fed chair appointment than about economic conditions.” Nonetheless, the decision to keep rates steady lends favourably to the US dollar relative to foreign currencies. Technically speaking, we also see an inverted head-and-shoulders pattern in the DXY, pointing to potential upside in the US dollar. As for the oil market, it will be interesting to see how 1 Aug’s tariff deadline alongside these new threats to the BRICS nations stand in the coming weeks, all against the backdrop of the ever-present TACO.
