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Oil Price Fundamental Daily Forecast – Uncertainty Over Lost Production from Iran Sanctions Still Driving Upside Momentum

By:
James Hyerczyk
Published: Sep 24, 2018, 11:23 UTC

The refusal to immediately increase production combined with a bullish long-term chart pattern is helping to fuel today’s rally. With upside momentum picking up, we expect to hear more criticism from President Trump, but other than some light profit-taking, his comments are not likely to have much of an effect on the price action.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading sharply higher on Monday, shortly before the cash market opening after OPEC held its ground over the weekend and declined to agree to an immediate increase in output despite last week’s pressure by President Trump to do so.

At 1108 GMT, November WTI Crude Oil futures are trading $71.93, up $1.13 or +1.56% and December Brent Crude Oil futures are trading $79.98, up $1.74 or +2.22%.

Basically, the rally is being fueled by OPEC and is allies’ refusal to step up its oil production to combat rapidly rising prices. Early last week, the market was supported by a report which said Saudi Arabia would be comfortable with Brent prices over $80 a barrel. This report drew criticism from President Trump who called for the cartel and other non-OPEC members to increase production.

Going into its week-end meeting in Algeria on Sunday, reports surfaced that said members would be discussing a 500,000 barrel increase. However, during the meeting OPEC leader Saudi Arabia and its biggest oil producer ally outside the group, Russia, ruled out any immediate extra increase in output, effectively rebuffing a call by Trump for action to cool off the current rally.

“I do not influence prices,” Saudi Energy Minister Khalid al-Falih told reporters.

Forecast

The refusal to immediately increase production combined with a bullish long-term chart pattern is helping to fuel today’s rally. With upside momentum picking up, we expect to hear more criticism from President Trump, but other than some light profit-taking, his comments are not likely to have much of an effect on the price action.

We could see those OPEC countries with available spare capacity led by Saudi Arabia, to increase production a little, but this should not completely offset the oil lost from the drop in Iranian exports. Furthermore, it leaves the market extremely vulnerable to supply disruptions.

One problem is the uncertainty over how much oil will be lost when the U.S.-led sanctions against Iran begin in November. J.P. Morgan says the loss could be a large as 1.5 million bpd. Mercuria analysts warned that it could be as high at 2 million bpd.

Until this figure is determined the way of least resistance is likely to be up with strong support coming in on the dips.

About the Author

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.

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