Summary:

• The US State Department says companies buying Iranian crude oil must cut those imports altogether by November
• NZ dollar declines despite a higher than forecast trade surplus
• Chinese President Xi Jinping warns provinces, ministers to be prepared for a full-blown trade war

Oil prices jumped yesterday after the US State Department called on companies which buy Iranian crude oil to completely cut those imports by November or they would face powerful sanctions. According to a message from the US official the Trump administration has yet to hold talks with China, India or Turkey with regard to their purchases of Iranian oil. Crude prices increased substantially as it puts 2 million barrels, Iran exports every day, at stake suggesting the entire market would face a deficit at the end of the year. Notice that the deadline when all companies need to stop purchasing Iranian crude oil comes from the 180-day period given foreign companies to wind down their business with Iranian counterparts after President Donald Trump withdrew the US from the Iran nuclear accord in May.

The move taken by the State Department is a clear signal that Donald Trump is not going to go the same route as his predecessor Barack Obama allowing countries to gradually phase out Iranian crude exports over many months. Finally, the news came at a time when the OPEC/non-OPEC meeting in Vienna last month resulted in additional 700kbpd (on a net basis) whereas the whole market is regarded as roughly balanced (the OPEC shares a view that a rising demand should be enough to absorb additional supply). Moreover, crude prices were also notably buttressed yesterday evening by the API release producing a gargantuan decline of stockpiles of 9.2 million barrels. As of 6:45 am BST on Wednesday both major grades of crude are rising 0.3% each.

WTI prices are continuing to increase in the morning after breaking a key technical level of $69.4. As a result, one may suspect bulls could take a stab at moving toward this year’s high placed a notch below $73. Overall, the outlook for crude oil seems to be mixed, on balance, sellers could struggle to take the price meaningfully lower. Source: xStation5

As far as currencies are concerned one need to put emphasis on the NZ dollar being down as much as 0.6% in early trading on Wednesday. It comes despite a May trade surplus totalled 294 million NZD easily exceeding the median estimate placed at 100 million NZD. When it comes to the 12 months year to date approach there was a 3598 million NZD deficit while economists had expected yet deeper shortage. Together with the NZ dollar one may identify that other commodity-related currencies such as CAD or AUD are also underperforming while the Japanese yen is catching a bid once again, not a huge change though.

The NZ dollar seems to be on the verge of a deeper slide as the price is hovering at around a crucial technical support line. Notice that the RBNZ meeting taking place later today might be a source of uncertainty, and this is especially true when we take into consideration the yesterday’s remarks regarding the NZD being at ’elevated levels’. That said, risks seem to be tilted slightly to the upside given the recent slump we’ve seen. Source: xStation5

Last but not least, Chinese President Xi Jinping warned yesterday provinces and ministers to be prepared for a full-scale trade war. He expects it is rather inevitable the US will impose tariffs on $34 billion worth of Chinese goods on 6 July, and already suggests China will respond to these measures accordingly. Xi points out that trade concerns might push the yuan lower against the US dollar in the short term, this is something US President Donald Trump is not fond of. He said that the PBoC will also refrain from increasing holding of US Treasuries, and in fact it will seek to reduce them appropriately.