Oil News: Crude Oil Futures Edge Higher as Iran Tensions Offset Supply Glut

WTI Crude Edges Higher as Geopolitical Risks Offset Supply Glut Concerns

Light crude oil futures settled higher on Friday following another successful test of a short-term retracement zone. The market also remained inside a pair of moving averages, suggesting a rangebound trade. The price action also suggests traders are trying to find a balance between the ongoing supply glut and the possibility of a supply disruption due to the unrest in Iran.

On Friday, March WTI crude oil futures closed at $59.34, up $0.26 or +0.44%.

Iran Tensions Support Prices Ahead of Holiday Weekend

Speculators, betting on a possible U.S. military strike against Iran defended prices against a collapse and weak short sellers covered positions ahead of the three-day Martin Luther King holiday weekend on Friday, leading to the higher close.

Although it could be weeks before any military action could take place, traders are noting that the U.S. Navy’s aircraft carrier U.S.S. Abraham Lincoln is expected to arrive in the Persian Gulf next week after operating in the South China Sea.

Earlier in the week, the U.S. benchmark hit a multi-month high after protests flared up in Iran and U.S. President Trump signaled the potential for military strikes, but lost over 4% on Thursday as Trump said Tehran’s crackdown on the protesters was easing, reducing concerns of possible military action that could disrupt oil supplies, Reuters reported.

Supply Concerns Create Conflicting Pressures

While a possible supply disruption is helping to establish a price floor, worries over increased supply may be capping gains. Traders are monitoring potential supply increases from Venezuela, which raises the risk that some of the recently embargoed oil may flow into the world market.

Some analysts are saying that despite the geopolitical risks, the underlying fundamentals point toward ample supply. But, increased Chinese demand or an actual production disruption, could send prices higher. Otherwise, the market may be poised for a rangebound trade.

Technical Outlook Points to Range-Bound Action

The daily March WTI futures contract also points to the possibility of a rangebound trade. The main trend is up according to the daily swing chart and the 50-day moving average. However, momentum is trending lower.

Technically, support is a pair of 50% levels at $58.93 and $58.52, followed by the 50-day moving average at $58.26. On the upside, resistance is being provided by a longer-term 50% level at $59.80, the 200-day moving average at $60.53 and the 61.8% level at $60.96. Last week’s rally stopped at $62.20 and sold-off into $58.76 before rebounding into the close.

Both the fundamentals and the technicals support a rangebound trade as traders await the next catalyst to drive it either sharply higher or lower. The next bullish catalyst could be military action against Iran. If there is a delay, then the oversupply story will continue to cap gains and drive prices lower.

More Information in our Economic Calendar.