Why crude needs to be on everyone's radar

With the Brent futures falling 5% to a low of $71.99 on open, the oil market has spent the day working to find a new fair value, with the majority of transacted volume through Asia playing out between $73 and $72.50. London and European-based traders will shortly have their chance to react to the move lower seen through Asia, and while the price action could go either way, tactically the trade of selling intraday rallies seems the play, and it certainly seems a tall order to think the Brent price will re-test Friday’s low of $74.17, and even more so to push back to Friday’s closing levels of $75.90.

With the prospects of Iranian oil facilities being left out of Israel's military plans, the demand side of the crude supply/demand equation should become increasingly more influential as a near-term price driver, with the crude price taking it's steer from tier 1 growth data, as it will on expectations that China’s authorities offer real substance at next week's NPC meeting (4-8 Nov) , offering the clarity the market craves as to how they plan to lift animal spirits, and boost consumption and demand.

Of course, Trump – should he become president - could play a significant role in influencing the crude price and have the market firmly refocus its attention back on supply, although that would be conditional on the Republicans controlling both chambers of Congress.

While the US is already producing 13.5 mbpd if Trump were able to make good on his proposal to increase US crude production by an additional 3 mbpd, this level of output could have far-reaching implications.

Naturally, Trump knows the Saudis have the capacity to take it's daily run rate up 3m bpd and towards 12 mbpd, but if the US were to move first, the Saudis and many in the OPEC+ alliance would be faced with either a further loss of market share or countering but risk pushing the crude price towards $60.

Trump, of course, has the clear advantage of wanting a lower crude price and this will offer him leverage, but should we see a Trump presidency and a Republican sweep, the battle between the major crude-producing nations will be an incredibly interesting dynamic and one that becomes even more interesting if Trump can deliver on his call that he will mediate peace between Russia and Ukraine – an outcome that could see European constraints on Russian imports reduced, a factor that would only increase the headwinds being thrown at the oil markets.