Increasing output may be the catalyst on Monday, but since it’s a U.S. holiday, we’re not going to read much into the price action. Issues are being raised about increased production, but that story has been floated for weeks. The rally since August 16 has been all about supply concerns and this trend is likely to continue over the near-term because of the uncertainty over exactly how much production will be lost when the sanctions against Iran begin in November.
U.S. West Texas Intermediate and international benchmark Brent crude oil futures are edging lower early Monday in limited trading action. Volume is light because of a U.S. bank holiday.
At 0518 GMT, October WTI crude oil futures are trading $69.63, down $0.17 or -0.24% and November Brent crude oil is at $77.48, down $0.16 or -0.21%.
The early trade is being influenced by concerns over rising supply from OPEC and the United States and weak economic data from China. However, losses are likely being limited by worries over falling Iranian output as we inch closer to the start of U.S. sanctions in November.
According to Reuters, output from OPEC rose by 220,000 barrels per day (bpd) between July and August, to a 2018-high of 32.79 million bpd. Reuters said the rise in output was fueled by a recovery in Libyan production and strong Iraqi exports.
Additionally, traders are saying that rising U.S. production could become an issue after Baker Hughes reported on Friday that U.S. drillers added oil rigs for the first time in three weeks. The rig count increased by 2 units to 862. In August, the U.S. Energy Information Administration reported that U.S. crude oil production hit a record 11 million bpd.
Increasing output may be the catalyst on Monday, but since it’s a U.S. holiday, we’re not going to read much into the price action. Issues are being raised about increased production, but that story has been floated for weeks. The rally since August 16 has been all about supply concerns and this trend is likely to continue over the near-term because of the uncertainty over exactly how much production will be lost when the sanctions against Iran begin in November.
According to government data, the hedge funds are betting that the markets will be supported by the notion that U.S. sanctions on Iranian crude oil exports will eventually lead to constricted markets.
The wildcard at this time is future demand. Analysts are warnings that an economic slowdown because of trade disputes between the United States and other major economies including China and the European Union would drag on oil demand.
This idea was supported early Monday when China reported slower manufacturing activity, shrinking export orders and employee layoffs.
That being said, aside from U.S. inventories data this week, traders are likely to react to the announcement of another $200 billion in tariffs on China by the U.S.
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.