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James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Tuesday, following through to the upside after yesterday’s more than 2% gains.

To recap yesterday’s key event that launched the markets to their highest level for the year and since November, the Trump administration announced all Iran sanction waivers would end by May. By pressuring importers to stop buying crude oil from Tehran, about 1 million barrels per day of crude oil would be taken from the market.

At 07:12 GMT, June WTI crude oil is trading $66.06, up $0.51 or +0.76% and June Brent crude oil is at $74.51, up $0.47 or +0.63%.

In ordering Iran’s eight biggest buyers to stop buying Iran oil by May 1 or face sanctions, the Trump administration is trying to fulfill the President’s promise to cut Iran oil exports to zero in an effort to cripple its economy and perhaps force a change in policy or government.

Analysts Chime In

The move by Washington took many market participants by surprise leading Barclay’s bank to say in a note that the move would “lead to a significant tightening of oil markets”. It went on to say that the decision posed a “material upside risk to our current $70 per barrel average price forecast for Brent this year, compared with the year-to-date average of $65 per barrel”.

ANZ bank also said in a note on Tuesday that “the decision is likely to worsen the ongoing supply woes being felt with Venezuelan sanctions, the OPEC supply cut, and intensifying conflict in Libya.”


Daily Forecast

We’re in a momentum and news driven market with both WTI and Brent trading on the strong side of previous resistance levels. These prices are now support at $63.48 and $71.77 respectively.

There is one issue that could interrupt the current rally, Saudi Arabia and the United Arab Emirates could announce a production hike designed to replace the Iranian oil. At least that’s what the United States hopes happens.

Saudi Arabia is the world’s biggest exporter of crude oil and OPEC’s de-facto leader, according to data compiled by CNBC. OPEC and its allies are scheduled to meet in June to discuss its output policy. At that time, should the group decide to end their production cut program starting in the second half of the year, gains could be limited and prices could even pullback into support.

Russia said last week that it may decide to drop out of the group in an attempt to regain some of its market share lost to the United States. In order to do so, it would have to increase production to meet the needs of their potential customers and drop prices in an effort to attract buyers. This could further limit gains and trigger a pullback in prices.

President Trump has said in the past that he doesn’t want high oil prices and has called upon the Saudi’s to increase production. The last time he asked, they rebuked him. This time, Trump may be more insistent because high oil prices could slow down U.S. economic growth.

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