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Crude Oil in Volatile Trade Amid Saudi Tensions, Global Macro Fear

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October 15th, 2018

Crude Oil prices were volatile Monday as the disappearance of a prominent Saudi journalist caused in a spike in geopolitical tensions that initially sent crude markets soaring before global macro uncertainties resurfaced to cut gains.

U.S. West Texas Intermediate crude oil WTI futures jumped 1.7% to a session high of $81.86 before trading just a penny higher at $80.44 by 12:38 PM ET (18:38 GMT). U.K. Brent oil futures, its global peer, traded 3 cents up at $80.46, moving between $79.86 and $81.86.

Jamal Khashoggi, a columnist for the Washington Post and a Saudi royal insider-turned-critic entered the Saudi consulate in Istanbul, Turkey, on Oct. 2 and has not been seen since.

Tensions in the Middle East typically drive crude prices up. The Khashoggi matter has reignited diplomatic wrangling between Saudi Arabia and Turkey that followed Saudi Crown Prince Mohammed bin Salman’s labeling of Ankara in March as part of a “triangle of evil” alongside Iran and Islamic extremists.

In the latest spat, Turkish sources say they have recordings to prove Khashoggi was murdered and dismembered, but haven’t made those public. Saudi authorities say Khashoggi left the consulate after his visit, but haven’t provided evidence either.

The fallout from the Khashoggi matter has widened to affect a business conference in Riyadh later this month, dubbed “Davos in the desert” where some notable attendees, including World Bank head Jim Kim, have pulled out. President Donald Trump has weighed in, saying Saudi King Salman had denied knowledge about Khashoggi’s whereabouts in a phone call but that the White House has ordered Secretary of State Mike Pompeo to "immediately get on a plane" to Saudi Arabia.

After oil’s initial jitters over the crisis, traders turned their attention to global economic uncertainties, and crude prices gave back much of their early gains. Since last week, a wobbly Wall Street, soaring U.S. Treasury yields and Federal Reserve plans for higher interest rates through 2020 have led to risk aversion.

“Fear about rising interest rates and their hit on stocks are feeding into commodities again," John Kilduff, partner at New York energy hedge fund Again Capital, told "The strength of the dollar is crushing countries like India and Turkey and other bright spots of demand for oil.”

London-based consultancy Energy Aspects concurred.

“Oil market sentiment has made a complete U-turn over the last week,” it said in a note. “The worry is that this equity market meltdown eventually saps the momentum in global economic growth.”

There were also questions about demand for crude, Kilduff said, after the West’s energy watchdog, the International Energy Agency, warned last week about the impact of “expensive oil” on the global economy and a glut could form despite impending U.S. sanctions against Iranian oil exports that begin on Nov. 4.

Not everyone is bearish on oil, though.

Societe Generale (PA:SOGN) on Monday raised its fourth-quarter forecast for Brent to $82 from $78, citing "high levels of risk and uncertainty in the oil markets", Reuters reported.


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