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Oil Monthly Forecast – November 2018

By:
Colin First
Published: Nov 2, 2018, 20:59 UTC

Crude Oil saw a month low decline and is now on range bound price action as investors patiently observe market to gauge impact of US sanctions on Iranian crude oil and over supply worries owing to slowdown in global economy amid increased stockpile in inventories.

Oil Monthly Forecast – November 2018

Crude oil in spot market saw steady downtrend move across the month of October. Some of the factors that affected price action of US crude oil in spot market include global economic slowdown, investors concern over US sanctions on Iranian crude oil and oversupply concerns. The first of week of October saw Crude oil trade in range bound fashion with price movement limited between $73 & $76 per barrel as investors worry and concerns over US sanctions on Iranian Crude oil import greatly affected price momentum. The second week saw US crude oil open bearish but price edged higher up owing to news of partial shutdown of oil rigs in Gulf of Mexico owing to hurricane Michael and reports of falling crude exports from Iran ahead of US sanctions as investors worries that US demand for oil embargo could result in significant supply shortfall.

However reports of US Crude oil inventories showing a better than expected data with increase in stockpile and reports of Hurricane Michael passing by without causing any damage in gulf of Mexico eased supply worries resulting in crude oil price seeing a steady decline and spot US crude closing on bearish note despite price edging up from weekly lows on last trading session of the week. The third week saw steeper fall in crude oil price as news of Saudi journalist hit market which caused tensions to spark between US & Saudi Arabia with US President Donald Trump commenting that US government will impose sanctions if proof was found regarding involvement of Saudi Arabia in the murder of Saudi Journalist. Saudi Arabian government responded with an indirect threat to US Government stating that any interference from President Trump or US Government in regards to death of the journalist will result in Saudi Arabia retaliating by driving oil price higher.

Escalating US-Saudi Tensions Affected Crude Price Along With Investors Concerns Regarding US Sanctions on Iranian Crude Oil

News of talks between Saudi Arabia and Kuwait to resume production in Partitioned Neutral Zone, whose output was around 500000 to 600000 BPD before it was closed, ended without any resolution drove crude oil price to weekly lows. Continued escalation of tensions between US & Saudi Arabia and reports of US EIA that crude oil inventories saw increase in stockpile for 5th consecutive week greatly impacted crude oil price action and resulted in steep bearish decline. Escalating tensions between US & Saudi drove Brent crude price back above $80 per barrel but as of 4th week of October, Geo-Political events and supply concerns owing to US Sanctions on Iranian crude oil had resulted in WTI falling over 10% while Brent Crude fell by 9% in month of October as per Futures data.

While comments from Saudi Arabian Energy Minister Khalid Al-Falih pledged to play responsible role in energy market and announced possible partnership with Russia easing investors worries about Saudi cutting Crude supply in retaliation to US intervention in matters relating to death of Journalist Khashoggi, oil market saw bearish pressure post comments from Saudi Arabia’s OPEC Governor who said that slower global growth could mean lower demand for crude oil and market could face oversupply in current quarter. Bearish rout in key global markets added further bearish pressure to crude oil price in broad market. The last week of October saw crude oil continue to trade bearish owing to firm USD in broad market and bearish equity markets putting pressure on purchasing power of investors from Asia and other emerging markets.

Slowdown in Global Economic Growth & Increase in Crude Output From Three Major Global Producers Out Weigh Supply Concerns From US Sanctions on Iranian Crude Oil

US Crude WTIUSD closed for the month on bearish note as bearish price action solidified owing to reignited trade war between US & China as news hit market that US President Donald Trump plans to impose additional tariff on Chinese goods worth $257 billion.  The month of November saw crude oil continue to trade bearish in spot and futures market. Crude Oil price could turn range bound in week ahead as investors now patiently wait to observe impact of US sanctions on Iranian crude oil and updates on Sino-U.S. trade related talks as positive outcome would be good for Crude oil since China is the biggest importer of Crude oil in the world.

Meanwhile, Libya has restarted three small oil fields and added around 10,000 bpd to its oil production—which has been steadily rising over the past two months as per comments from spokesman for Libya’s National Oil Corporation (report from Reuters). Analysts now believe that surging output from the world’s three largest producers outweighed supply concerns from the start of U.S. sanctions against Iran’s petroleum exports which is expected to become active this weekend. Analysts also believe that the surge in output has resulted in Contango scenario which implies that prices for future delivery are higher than for immediate dispatch resulting in traders stocking up on oil for later sale in trading market resulting in traders and investors increasing their positions for short term. However the spread seems to still be insufficient to encourage physical storage.  Outcome of macro data from Key global markets and Sino-US trade talks proceedings will now decide the medium term price action direction.

About the Author

Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.

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