U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly better on Tuesday shortly before the regular session opening. The markets are being underpinned by worries that tensions in the Middle East could lead to supply disruptions, although gains are being limited by concerns over rising U.S. crude oil production.
At 1122 GMT, May WTI crude oil is trading $65.82, up $0.27 or +0.41% and June Brent crude oil is at $69.78, up $0.26 or +0.37%.
To recap yesterday’s price action, crude oil closed lower on Monday as investors took profits after last week’s more than 5 percent rise. Traders said that despite the strength in the stock market, there was still some uncertainty over how a trade war would impact demand for crude oil.
Forecast
Yesterday’s higher-high, lower-close chart pattern does not mean the trend is getting ready to turn lower, but it does indicate the selling is greater-than-the-buying at current price levels and that the market may be ripe for a short-term correction in order to alleviate the short-term “overbought” conditions.
Elevated volatility is expected to be the theme once again today. Speculators are driving prices higher because of the fear of the unknown, but gains are being capped by fear of the known.
We aren’t sure how the tensions between Iran and Saudi Arabia are going to play out. We also aren’t sure how supply will be affected if the U.S. re-imposes the sanctions on Iraq.
We also don’t know if the behind-the-scene talks between the U.S. and China will prevent a looming trade war. And we also aren’t sure if the OPEC-led group will eventually agree to extend their production cuts into 2019.
What we do know is that U.S. production is expected to continue to rise this year.
Essentially, the duration of the current rally will be up to the speculators – namely the hedge funds. Recently, government data showed they were reducing long positions. At the end of this week, we should find out if last week’s rally was driven by new buying or aggressive short-covering. This will determine if there is going to be a near-term correction, or a near-term top.
Given yesterday’s price action, WTI futures are expected to strengthen on a sustained move over $66.55 but will face a wall of former tops. The market is likely to weaken on a sustained move under $65.08.
Late today, traders will get the opportunity to react to the latest inventories data from the American Petroleum Institute. Last week, the report showed an unexpected drawdown after analysts had predicted an inventories build.