U.S. West Texas Intermediate and international-benchmark Brent crude oil futures continue to climb on Tuesday with the latest surge being fueled by concerns over supply disruptions due to a military conflict in Libya.
Both markets hit 5-month highs earlier in the session with WTI crude oil continuing to accelerate to the upside after breaking through a major technical resistance level. Brent crude is also strengthening, but has yet to overtake the key resistance level that could trigger an acceleration to the upside.
Crude oil continues to be underpinned by the OPEC-led production cuts and the U.S. sanctions against Iran and Venezuela, which have worked in tandem to reduce the global supply glut and tighten supply.
However, news of tense fighting in Libya this week has helped prices surge to multi-month highs. Speculators are betting on a disruption that could further tighten supply. According to CNBC, “Libya is a significant supplier of oil to Europe, producing around 1.1 million barrels per day (bpd) of crude in March.” CNBC is also reporting that a warplane attacked Tripoli’s only functioning airport on Monday.
Despite the bullish tone, traders are expressing some concerns over a global economic slowdown that could reduce future demand. Bank of America Merrill Lynch said on Monday that there was still a “significant slowing in growth globally” in 2019.
The rally may be slowing early Tuesday because so far there haven’t been any reports of supply disruptions from Libya. This news may encourage speculators who bought early to book profits, erasing some of the recent gains.
Furthermore, we could start to see some position-squaring and profit-taking ahead of Wednesday’s Fed minutes because they may reveal expectations of further weakening in the economy by the central bank. This would increase fears of a recession while raising concerns over future demand.
Late Tuesday, traders will get a chance to respond to weekly supply data from the American Petroleum Institute. An unexpected jump in inventories could also increases worries over rising U.S. production.
This article was originally posted on FX Empire
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