Summary for the 23rd of April 2019


Yesterday, the oil price had risen sharply. Brent crude rose by 2 dollars a barrel in just a couple of hours. The reason for this was the news that the US won’t be extending the sanctions exemptions for countries buying oil from Iran after the end of May.

On November last year, the US left out of the nuclear deal between Iran and six other world powers and re-imposed sanctions on Iran’s core area of economy. The oil price rose sharply after the reimpose until it was announced that eight countries including, China, Japan and India would get exemptions from penalties when buying oil from Iran. This led the oil price to fall down to 35 dollars a barrel in just a few weeks by the end of 2018, the sharpest decline since the 2014 oil price crash. Due to this, the ongoing volatility in the oil price shouldn’t come as a surprise.

2 dollars a barrel price drop isn’t considered a dramatic drop, the price stabilizes at 74.2 dollars a barrel. The reason for this is because The US has been in talks with Saudi-Arabia before the announcement of ending Iran sanctions exemptions. This implies that Saudi-Arabia will be increasing its oil production to replace the falling oil supply from Iran. According to Donald Trump, an increase in oil supply from Saudi-Arabia and OPEC will more than make up for the fall in supply from Iran.

The US retail sales in March showed a 1.6% growth from previous month (-0.2% in February), better than the consensus of 1%. Excluded for volatile items (automobiles, gasoline, building materials and food services), the sales rose by 1% in March after a fall of 0.3% in February. The data indicated that the weakness in US consumer spending was due to temporarily factors such as the government shutdown.

Economic indicators from the EU area disappointed. The weakness in the EU area wasn’t due to temporarily factors as first was thought. PMI from the EU area showed that the activities in the manufacturing sector in France and Germany declined in April, giving weakness in the overall activity in the EU area. This might also be due to the weakness from the service sector. China’s economic activity has been increasing lately, this can increase the activity in the EU area eventually.

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