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Oil Price Fundamental Daily Forecast – Geopolitical Events Outweighing Jump in U.S. Supply

By:
James Hyerczyk
Published: Apr 12, 2018, 08:10 UTC

Speculators are betting that escalating military action will eventually lead to a disruption in supply.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil are trading flat to lower respectively early Thursday, but volatility remains elevated amid concerns over an escalation of military activity in Syria.

At 0741 GMT, June WTI crude oil is trading $66.70, down $0.04 or -0.06% and June Brent crude oil is at $71.86, down $0.20 or -0.28%.

WTI  Crude Oil
Daily June West Texas Intermediate Crude Oil

The price action clearly shows that geopolitical risks are outweighing an unexpected rise in inventories in the United States and the ongoing trade disputes between the U.S. and China.

On Wednesday, oil prices high their highest level since early December 2014 after President Donald Trump warned Russia to prepare for a strike on its ally, Syria. His warning came in response to the Russian ambassador to Lebanon who said earlier his country would intercept any U.S. attack on Syria and potentially target the craft that fired missiles.

Additionally, crude oil prices were further supported following a strike on top oil exporter Saudi Arabia by rebels in neighboring Yemen.

In other news, the U.S. Energy Information Administration said U.S. crude inventories rose by 3.3 million barrels to 428.64 million barrels. Additionally, U.S. crude oil production last week hit a fresh record of 10.53 million barrels per day (bpd), up by a quarter since mid-2016. The rise in production means the U.S. now produces more crude than top exporter Saudi Arabia. Only Russia, at currently just under 11 million bpd, pumps out more.

Brent Crude
Daily June Brent Crude

Forecast

The geopolitical news is driving the price action at this time. The move is being fueled by a combination of short-covering and aggressive speculative buying. The shorts are being forced out because no one seems to be willing to sell due to the lingering threat of additional missile strikes by the U.S. on Syria and the possible retaliation by Russia against the U.S.

The speculators are betting that escalating military action will eventually lead to a disruption in supply.

Prices are likely to remain at high levels until a peaceful resolution is reached, or until traders realize that supply is safe or unaffected at this time.

The markets could turn quickly to the downside if the ongoing trade dispute between China and the United States blows up the stock market again. On Thursday, China lashed out at the United States, saying that the trade disputes, were “single-handedly provoked by the U.S.” and that Beijing was prepared to escalate the spat if Washington did not back off its threatened import tariffs.

Additionally, the Chinese Commerce Ministry also said there had been no bilateral negotiations with the United States on the trade frictions.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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