Oil Price Fundamental Daily Forecast- Prices Could Retreat if Iraqi Kurd Situation is Defused

U.S. West Texas Intermediate Crude Oil futures are trading slightly lower early Monday. Volume is low and the market is trading in a tight range. There were no major fundamental changes over the week-end so the price action is likely being controlled by technical factors.

Some technical traders are calling the markets overbought and overdue for a correction. On Thursday, the WTI futures contract formed a potentially bearish technical reversal top which often indicates the selling is greater than the buying at current price levels. It doesn’t mean the trend is getting ready to turn down, but if confirmed, it could lead to a 2 to 3 correction. The move may be necessary to alleviate some of the excessive buying pressure.

The Brent futures contract formed a similar chart pattern earlier in the week on September 26 after hitting a new high for the year.

The difference in the dates of last week’s highs suggests a slight divergence between WTI and Brent crude oil. This could lead to a tightening of the spread between the two contracts.

The underlying trend is bullish because of expectations of increased demand. Both OPEC and the International Energy Administration are forecasting stronger demand into the end of the year. Unless these forecasts change, the tone of the market should remain bullish which means investors are likely to buy the next meaningful correction into a value zone.

The nearest value zone for November WTI futures is $50.23 to $49.60. The value zone for the December Brent futures contract is $55.88 to $55.17.

At the start of the week, bullish traders will be watching the geopolitical risk in Kurdistan. It helped push Brent crude to a two-year high last week. If this situation escalates into a conflict that shuts down supply then prices could rally.

If you recall the events from last week, Iraqi Kurds endorsed a secession by nine to one in a referendum last Monday that has angered Turkey, the central government in Baghdad and other powers. Traders fear the vote could lead to renewed conflict in the oil-rich region.

The Kurdish region exports about 500,000 barrels a day through the pipeline so shutting it down could have a bullish impact on prices.

On the negative side, Middle Eastern oil producers are concerned the recent price rise will give U.S. oil companies a reason to increase U.S. shale production.

U.S. oil drillers added six oil rigs in the week to September 29, bringing the total count up to 750.

Traders will be watching Tuesday’s American Petroleum Institute’s and Wednesday’s Energy Information Administration’s weekly inventories reports to see if production has risen.

If the situation with the Iraqi Kurds is defused then I expect to see WTI and Brent crude retreat into their value zones.