Oil hits 6-week high as Gulf tensions rise

Summary:

• Brent Oil above $67 as Iranian ships approach UK vessels 

• Market builds on yesterday’s gains

• Parity warning for GBPUSD 

There’s been further gains seen in the price of crude oil with international benchmark Brent hitting its highest level since the end of May, above $67, a barrel as tensions in the Gulf are escalating once more. Reports that Iranian boats attempted to impede a British oil tanker before being driven off by a Royal Navy ship has once more raised the spectre of a major disruption in what is a key choke point for waterborne crude.

 Roughly 20% of global oil flows through the Strait of Hormuz and any disruption around this key bottleneck could cause a rapid supply shock and send oil prices spiking back near the year-to-date high in the mid $70 region. The oil markets were already enjoying a solid week of gains, with Wednesday’s session posting an increase of more than 4%, supported by another large decline in US inventories and a softening US dollar. There seems to be a confluence of factors combining to provide a pretty potent cocktail for Oil at present and it would not come at all as a surprise if further gains lie ahead.

Oil prices are gaining and after breaching 66.75 to the upside the market is looking to extend further towards 69.25. The 8/21 EMAs have turned positive and according to this indicator the market is back in an uptrend. Source: xStation  

Branson warns GBPUSD could hit parity

There’s been a bit of a bounce seen in the pound in the past 24 hours, thanks in part to a drop in the US dollar after the Fed reaffirmed their dovish stance yesterday. The GBP/USD rate has moved back above the $1.25 handle and while there is still plenty of pessimism around there is also a feeling that with a lot of bad news already baked in there could be a further recovery ahead. Leading the pessimistic voices today is Sir Richard Branson with the boss of Virgin warning that the GBP/USD would fall to parity if there is a hard Brexit. 

Unsurprisingly, there have been many calls for further declines in the event of a no deal Brexit, but a drop of 20% is needed for the pair to reach $1/£1 and this does seem a pretty extreme forecast. Despite his promises to deliver Brexit by 31st October there still seems to be significant hurdles for the likely next PM Boris Johnson to deliver on this, and as such these doomsday scenarios for the pound are still unlikely to manifest.  

For GBPUSD to reach parity, price would have to fall by 20% from current levels - almost exactly the same size decline that was seen from the referendum day high to the subsequent low at 1.20. Source: xStation