Oil Price Fundamental Daily Forecast – Vertical Price Action Suggests Speculators Taking Control

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed on light volume early Tuesday. Light profit-taking and position-squaring is probably behind the moves since there have been no major changes to the predominately bullish fundamentals.

Brent is trading near its four-year high reached on Monday and WTI is just tagging along mostly because of the uncertainty created on the supply side of the business nearly a month before the U.S. sanctions on Iran are scheduled to begin.

At 0757 GMT, November WTI crude oil futures are trading $75.54, up $0.24 or +0.32% and December Brent crude oil is at $84.86, down $0.12 or -0.18%.

From a technical standpoint, the markets have gone vertical which usually makes them ripe for profit-taking due to overbought conditions so a short-term pullback wouldn’t be too much of a surprise. With the hedge funds net long the markets, any weakness is likely to be position-squaring because it is going to take a major shift in the fundamentals to spook the big money controlling the price action at this time.

Looking at the bigger fundamental picture, the markets are being driven sharply higher due to the looming U.S. sanctions against Iran’s oil industry. Recent data shows that at its peak, the country was supplying as much as 3 percent of the world’s supply.

Short-term, bullish traders are celebrating the announcement of the trade deal between the United States, Mexico and Canada. Traders liked this news enough on Monday to fuel an acceleration to the upside. This is because it raised hopes that the current trade disputes would not hurt demand by sending the world into recession. Furthermore, demand could actually increase if business returns to usual.

Forecast

The bullish narrative is expected to remain the same at the start of regular session trading on Tuesday. That is, the supply side of the oil market is fragile and vulnerable to any unexpected supply disruptions from Venezuela, Libya, Nigeria or even the North Sea.

Furthermore, there is too much uncertainty in the market at this time over the Iranian sanctions. While uncertainty may drive assets like stocks lower, it carries bullish ramifications in the oil market.

Traders still don’t know how much oil will be taken off the market. They still aren’t sure how many countries are going to go along with the U.S. order to boycott Iranian oil and thirdly, no one knows if Saudi Arabia and Russia will produce enough oil to offset any lost supply.

With this in mind, speculators and professionals have been buying with both hands. Additionally, several investment banks have been throwing out $100 per barrel forecasts. This time, they have real reasons to make these forecasts.

If the market starts to look toppy, or if we see unexpected weakness, then this may signal that the White House is negotiating for more oil to be released. However, the question remains, where will it come from?