Oil Price Fundamental Daily Forecast – Is a Bull Trap Being Set?

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are hitting multi-year highs early Thursday as investors and speculators continue to make adjustments to their longer-term supply forecasts in light of renewed U.S. sanctions against major crude exporter Iran.

At 0716 GMT, June WTI crude oil futures are trading $71.63, up $0.46 or +0.65% and July Brent crude oil is at $77.67, up $0.46 or +0.60%.

Although the Trump administration predicts the actual start of sanctions against Iran to begin in 90 days then another 90 days later, traders are already pricing in a possible disruptions in Iranian supply of 200,000 to 300,000 barrels per day.

In other news, U.S. crude inventories fell by 2.2 million barrels in the week to May 4, to 433.76 million barrels, according to the Energy Information Administration (EIA), slightly above the 420 million barrels five-year average level.

Weekly U.S. crude oil production hit another record last week, climbing to 10.7 million barrels per day (bpd).

Forecast

Speculators are driving the momentum which is pushing WTI and Brent crude oil prices higher.

The price action suggests that if the U.S. follows through on the sanctions against Iran, no one, including Europe and China, is going to oppose the move. Essentially, any nation that fights the U.S. on this decision will be, in effect, choosing Iran over the United States and this is highly unlikely.

Although the current leg of the rally suggests traders are “all in” on this bull market, there may be an issue with the 180-day wind down period. In other words, on Tuesday after Trump announced the decision to leave the Iran nuclear deal, the administration gave oil players a 180-day period to take care of current business. This means that the actual supply disruptions won’t take effect until close to mid-October.

It is possible for Iran to flood the market with oil in anticipation of the sanctions. This could lead to an overbought market, essentially trapping bullish speculators at the top. So be careful when buying. If you are too aggressive and Iran starts dumping oil on the market, you could be in for a world of hurt.

The trend is your friend if playing the long side at this time, but continue to watch the price action. Watch for signs of a reversal top because you don’t want to get caught in a bull trap.