(MENAFN- Investor Ideas) Investorideas, a go-to platform for big investing ideas releases market commentary from Samer Hasn, Senior Market Analyst at XS .
Crude prices are back on the rise today after yesterday's holiday, rising by about 0.5% for both brent and WTI.
Oil's gains reflect continued optimism about the recovery in demand for crude from China with successive support measures that are expected to begin to crystallize over the next year.
The latest of these measures was the approval of a historic $3 trillion treasury bond offering next year, which was announced earlier this week. It also follows monetary support packages and talk of plans to restructure the social system, which could be reflected in consumer spending, which is one of the most important weaknesses of the economy.
However, the re-ignition of trade wars between China and the United States when Donald Trump returns to the White House later in January, as he has already threatened, will deepen the losses in crude, and this is among the most important factors that markets will focus on at the beginning of the new year.
However, the severity of the restrictions that will be imposed on China is still unclear and they are still only threats that were launched during Trump's election campaign. While experts believe that Trump will not actually implement his threats as he spoke, but rather aims primarily to strengthen the United States' negotiating position on trade terms.
There are also many things that may deter Trump from implementing his threats, such as the impact on the USconsumer, rising inflation, and damage to agricultural exports, in addition to the pressure that China may exert through USbusinessmen who have interests in the largest manufacturer in the world.
In another context, the current holiday season is likely to contribute to reducing the downward pressure on crude prices, especially with the institutional investors' holiday. The German market is also closed today, which is also keeping institutional investors away. We also know that the sentimentof these investors is very low, as we saw in the latest relevant surveys from Sentix and ZEW, which may ultimately be reflected in increased short selling pressure, which we may not see today, which opens the way for an increase.
On the geopolitical side of the Middle East, the Yemeni front is back in the forefront with the unprecedented escalation of mutual attacks between the Houthis and Israel. While the escalation against the Houthis threatens the safety of global seaborne trade.
Achieving a breakthrough in Yemen may seem very difficult compared to what happened in Syria and Lebanon when Iranian influence was cut off there, but the Houthis are ultimately besieged and do not possess unlimited capabilities and resources, even if they are entrenched in the mountains, and their main ally, Iran, is weaker than ever.
Therefore, I believe that neutralizing the Houthi capabilities capable of targeting Western interests in the region will be achieved, even if it takes some time, and they may face a greater escalation by the West with the return of Trump to power.
With that, I again see that the geopolitical risk premium from the Middle East that oil prices benefit from may continue to dissipate over time, and the focus will remain on the recovery of the Chinese economy and the recovery of global demand for crude.
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