Oil Price Fundamental Daily Forecast – IEA Report May Be Sounding Bullish Alarm

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly lower shortly before the regular session opening while posting a two-side trade during the pre-market session.

At 0903 GMT, September WTI crude oil futures are trading $66.64, down $0.19 or -0.28% and October Brent crude oil is at $71.85, down $0.22 or -0.31%.

The markets traded mixed earlier in the session on worries that renewed U.S. sanctions against Iran will tighten supplies, while the escalating trade dispute between the United States and China raised issues about demand.

Bullish investors are holding out hope that the Iranian sanctions have not been fully priced into Brent, leaving room for a significant run-up in prices after November 1 when the full effect of the sanctions begin to take place.

Between now and then, the U.S. will use tactics to try to convince all nations to comply with its sanctions. With several major buyers of Iranian crude oil still not complying with the U.S. orders, there is still uncertainty as to how much oil will be removed from the market. Currently, analysts expect the drop-off in Iranian crude exports to range between 500,000 barrels per day (bpd) and 1.3 million bpd.

In addition to the Iranian sanctions, investors are also expressing bearish fears of reduced demand from China, partially due to the effects of the trade wars between China and the United States. Demand could also be pressured by a weaker Chinese economy and a stronger U.S. Dollar which makes dollar-denominated crude oil more expensive for foreigners.

Forecast

Besides the Iranian sanctions, which affect supply and the potential for lower demand, traders on Friday are also reacting to the latest monthly report from the International Energy Agency (IEA).

The IEA report said earlier today that the U.S. plan to impose targeted crude sanctions against Iran could significantly impact global supply and exhaust the world’s spare oil capacity cushion.

“As oil sanctions against Iran effect, perhaps in combination with production problems elsewhere, maintaining global supply might be very challenging and would come at the expense of maintaining an adequate spare capacity cushion,” the Paris-based organization said Friday.

“Thus, the market outlook could be far less calm at that point than it is today,” the IEA added.

The IEA also issued comments on trade tensions.

“Risks introduced by trade tensions have further increased, threatening to significantly reduce growth in some exporting countries,” the IEA said Friday.

“The threat of trade disruptions could recede as fast as they are mounting, however, it is difficult at this stage to make adjustments to our base case assumptions for the economy and oil demand,” the group added.

The direction of the September WTI crude oil futures contract on Friday will be determined by trader reaction to $66.81. The direction of the October Brent futures contract will be determined by trader reaction to $72.33.