Oil Price Fundamental Daily Forecast – Renewed Supply Worries Should Generate Upside Momentum

Based on the early price action, it looks as if sentiment is shifting back to the bullish side after two weeks of weakness. Concerns over demand are likely to become an issue late in the year or early next year due to the timing of the U.S. tariffs on China and China’s subsequent retaliation on U.S. goods.·FX Empire
James Hyerczyk
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U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher early Monday. After two days of consolidation, the markets are picking up a bid due to concerns of tightening supply tied to the start of the U.S. sanctions against Iran’s crude exports. Gains are being limited early in the session on worries over rising U.S. production after the rig count rose last week.

At 0711 GMT, December WTI crude oil futures are trading $69.81, up $0.53 or +0.78%. January Brent crude oil is at $79.72, up $0.46 or +0.58%.

A strong rally in China’s stock market is also helping to increase demand for risky assets. This is providing some support for buyers. Last week, crude oil experienced some weakness on worries over demand from China.

Looking at the current short-term timetable, the U.S. sanctions against Iran are set to start on November 4. The Trump administration is counting on full cooperation from other countries to reduce Iranian oil exports to zero. This may force Iran to renegotiate an agreement on its nuclear program.

Reducing exports to zero is expected to tighten supply, but in June, OPEC agreed to boost supply to make up for the expected disruption to Iranian exports. However, an internal document reviewed by Reuters suggested OPEC is struggling to add barrels as an increase in Saudi supply was offset by declines elsewhere. This is potentially bullish.

Additionally, Fatih Birol, executive director of the International Energy Agency (IEA), said on Monday that other producers may struggle to fully make up for the expected Iran disruption, and that oil prices could rise further.

In other news, U.S. drillers added four oil rigs in the week to October 19, bringing the total count to 873, Baker Hughes energy services firm said on Friday, raising the rig count to the highest level since March 2015.

Forecast

Based on the early price action, it looks as if sentiment is shifting back to the bullish side after two weeks of weakness. Concerns over demand are likely to become an issue late in the year or early next year due to the timing of the U.S. tariffs on China and China’s subsequent retaliation on U.S. goods.

As we rapidly approach the start of the sanctions, traders will become increasingly concerned about a supply shortage. This means prices could be underpinned for several weeks. Currently, there is evidence that oil consumers are stockpiling crude oil in anticipation of more disruptions.

Start looking at the long side of the market after the two week setback. Supply worries are expected to strengthen because there are still concerns over whether OPEC will be able to make up for Iran’s shortfall.

This article was originally posted on FX Empire

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