Crude Oil

Oil Price Fundamental Daily Forecast – Speculative Buyers Continue to Bet on Supply Shortage

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly higher early Monday as speculators continue to bet that the U.S. sanctions against Iran, which are expected to begin next month, will lead to a supply shortage.

Leading the rally is the Brent crude oil because it will be directly impacted by the sanctions which kick in November 4. WTI futures are being supported by Friday’s rig count report, which showed a drop last week and stagnant growth for the quarter. Furthermore, it points to a slowdown in U.S. crude production.

In other news, hedge funds increased their bullish wagers on U.S. crude in the week to September 25, data from the U.S. Commodity Futures Trading Commission (CFTC) showed on Friday, increasing futures and options positions in New York and London by 3,728 contracts to 346,566 during the period.

There was also a report that China’s Sinopec said its halving loadings of Iranian crude oil this month. China is the biggest buyer of Iranian oil.

Additionally, U.S. President Trump called Saudi Arabia’s King Salman on Saturday, discussing ways to maintain sufficient supply once Iran’s exports are hit by sanctions.

At 0707 GMT, November WTI crude oil is trading $73.37, up $0.12 or +0.16% and December Brent crude oil is at $82.98, up $0.25 or +0.31%.

Forecast

The news is so bullish that ANZ bank is saying that “the market is eyeing oil prices at $100 per barrel”. They should’ve said bullish speculators because this is who has to buy with both hands in order drive Brent to this level.

Sure it’s possible especially because we still don’t know about compliance with the Trump administration’s order of zero exports from Iran. For example, if Chinese refiners do comply with U.S. sanctions more fully than expected, and India and Japan, then the market balance is likely to tighten even more aggressively.

Furthermore, I’m sure the Saudis would like to appease Trump, but where does he think they’ll get the oil? With November 4 coming up quickly and the market getting ready to lose about 1.5 million barrels per day, traders are going to find out rather quickly how much oil the Saudi’s can produce above their recent 10.5 million bpd output.

If you’re looking at only the supply side then $100 Brent is possible, however, there are also demand issues. Asia’s emerging markets could slowdown oil purchases if the dollar continues to rise. Inflationary pressures could also stunt demand growth.

Reports over the week-end point toward economic slowdown in China and Japan, blamed mostly on trade issues. Growth in China’s manufacturing sectors is already showing weakness. Business confidence in Japan is also falling.

Look for strength in the crude oil markets over the near-term, but it’s a little early to chase the market higher, no matter how aggressive the speculators get. Look for value on pullbacks.

Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.