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James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil are recovering early Friday from yesterday’s reversal to the downside. Short-covering is behind today’s early strength as investors continue to digest the impact of comments from President Trump which drove down prices on Thursday.

At 0932 GMT, November WTI Crude Oil is trading $70.75, up $0.43 or +0.60% and December Brent Crude Oil is at $78.88, up $0.66 or +0.84%.

In a series of tweets yesterday, President Trump urged OPEC to lower crude prices just days ahead of its meeting in Algeria this weekend. Trump said on Twitter “they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices.”

OPEC and other major non-OPEC producers are scheduled to meet on Sunday in Algeria to discuss how to allocate supply increases to offset a shortage of Iran supplies due to U.S. sanctions.

The consensus ahead of the meeting is that although supply worries have pushed up oil prices, OPEC and its allies were not likely to agree to an official increase in crude output at this weekend’s meeting, OPEC sources said.

Forecast

The great challenge for traders at this time is determining the sweet spot for crude oil. The market’s long-held supposition has been that Brent crude between $70 and $80 was OPEC’s target. However, reports this week said that Saudi Arabia is now comfortable with Brent at $80.

Recent market forces have put Brent in a position to challenge the $80 level and the rally into this level has been pretty smooth, suggesting little opposition to the area. Traders are primarily basing their buying decisions on concerns of supply shortages from looming U.S. sanctions against Iran, which are set to take effect in November, strong seasonal demand and the idea that spare capacity is falling sharply.

Trump’s tweets came as surprise to market participants on Thursday, which led to the sell-off, but they may not be enough to overcome the current forces in the market until we know more about the amount of crude oil that will be removed from the market because of the Iranian sanctions.

As long as the focus remains on the likely supply impacts of U.S.-led Iran sanctions, the bias should continue to be to the upside. The $80 level for Brent seems to be the swing number. The decision for speculators will be whether to drive the market through this level, or settle into the $70 to $80 range.

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