Oil Monthly Forecast – September 2018

Crude oil market saw mixed price action in the month ofAugustt over geo-political cues that influenced the oil market. The first week of August didn’t see much change in crude oil price as dollar denominated Crude Oil WTIUSD moved in sync with momentum from last week of July.

The second week saw Crude oil price take on a bearish note as news hit market on Saudi Arabia cut the September official selling prices (OSPs) for all its grades and to all markets except for to the United States, this was the second consecutive monthly reduction of the OSP to Asia in a bid by OPEC leader to expand its customer base. Meanwhile, China said it will not follow the US’ lead in cutting imports from Iran which added a further bearish sentiment to Crude oil as the market is currently weighed down by US Sanctions for any country dealing with Iran crude oil.

The escalating U.S.-China trade war deterred hedge funds and other money managers from opening new positions in the WTI and Brent benchmarks, with total bets dropping to their lowest since 2016 in the week to July 31, according to data by European and U.S. options and futures exchanges compiled by Bloomberg.

Turkish Crisis and Decrease in OSP For Arabian Crude to Asian Markets Result in Crude Oil Price Moving Downtrend

China’s targeting of natural gas and oil products for tariffs is a special rebuke aimed at the U.S. and cutting back on oil imports from the US weakened Crude market even further. Intensifying US-China trade tension resulted in spread difference between Western Canada Select (WCS) and WTI widening to historic lows at roughly $31 per barrel below WTI, the largest discount since 2013 on the second week of August 2018.

Crude Oil price fell near 2018 lows on news that not a single tanker has loaded crude oil from the United States bound for China since the start of August 2018 and Saudi Arabia’s output falling 200,000 b/d in July to 10.29 million b/d, according to OPEC’s monthly report which indicates Saudi failed to honor its agreement with OPEC allies to boost production. Turkish crisis also weighed down on Crude oil market on the early week but Crude oil price action rebound from monthly lows on news of the US and Chinese representatives meeting for two day talks to try and resolve an ongoing trade dispute.

While oil price did recover ground in the fourth week, the price action at the start of the week was on bearish tone as The EIA’s weekly report showed a massive 6.8-million-barrel increase in U.S. crude oil inventories while oil demand in Asian markets were slowing down. USD weakening in broad market over Trump’s comment on the direction in which Fed rate decisions are moving helped Dollar denominated Crude Oil price gain some ground.

Crude gained further on news of Sino-U.S. Trade talks failing to make any progress and US Crude Oil inventory data showing a surprise 5.8 million-barrel draw along with American Petroleum Institute data of a 5.17 million-barrel draw in US crude stocks to 405.6 million barrels resulting in a positive momentum for Crude Oil across the week.

Sino-U.S. Trade War Escalation and Low US Crude Stockpile Helped Crude Gain Over 10% in Last Two Weeks

The last week turned out to be supportive of Crude oil’s price growth with a combined increase of 10% in two weeks of gains. Analysts attributed the upside in oil prices to speculative positions created by traders as prices picked up in the global oil market as risks of supply disruptions from places such as Venezuela, Africa, and Iran triggered expectations of a tightening market.

While sanctions against Iran are beginning to impact oil supply, lifting crude prices amid a fall in U.S. crude inventories, Iraq is waiting in the wings, ready to increase its crude oil exports in anticipation of slipping Iranian oil exports waiting only on the go-ahead from OPEC and this could provde to be a limiting factor in Crude oil price growth.

As the countdown to the implementation of oil-related sanctions on Iran continues, investors now focus on December meet where Representatives of the cartel and like-minded producers will analyze compliance with the updated coordinated production cut regime since output quotas were increased in late June and decisions will be made on Iraq’s proposal to increase its Crude oil exports.

Moving forward Crude oil price is expected to see some decline in early half of September as the market is pressured by renewed concerns that a global trade war could dent energy demand, although impending U.S. sanctions on Iran and falling Venezuelan output could limit the decline. Sanctions on Iran that is set to begin in November and OPEC summit will continue to remain investor’s main focus while Geo-political events and trade war proceedings will dictate momentum in near future trading sessions.