Oil Price Fundamental Daily Forecast – Weaker on Rumors China, Russia Will Fill Iran’s Shortfall

U.S. West Texas Intermediate and international benchmark Brent crude oil are trading lower early Monday as long investors shed positions in reaction to concerns over Increased U.S. production and resistance in Europe and Asia to U.S. sanctions against major crude exporter Iran.

At 0720 GMT, July WTI crude oil is trading $70.35, down $0.33 or -0.45% and July Brent crude oil is at $76.69, down $0.43 or -0.56%.

U.S. oil drillers added 10 oil rigs in the week to May 11, bringing the total count to 844, the highest level since March 2015, according to energy services firm Baker Hughes.

There are also reports that Germany has said it will protect its companies from U.S. sanctions. Iran has said French oil giant Total has yet to pull out of its fields. Additionally, some are saying China will fill the void created by the U.S. Last week, some traders said they were worried about increased production from Saudi Arabia, Kuwait, and Iraq.

In other news, hedge funds and money managers slashed their bullish wagers on U.S. crude in the latest week to the lowest level in nearly five months, the U.S. Commodity Futures Commission (CFTC) said on Friday.

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Forecast

As I said last week, the recent rally in crude and the announcement of sanctions against Iran had all the makings of a “buy the rumor, sell the fact” situation. I also warned of a possible bull trap. I think these conditions still exist so investors should be careful about chasing the market higher at current price levels.

Additionally, with hedge funds and money managers slashing positions, one has to wonder if this means they are doubtful of significant prices rises before a meaningful correction into a value area.

There is also building pressure that Europe will oppose the sanctions on Iraq and that China and Russia will fill in any shortfalls. All of these factors create uncertainty and bullish traders don’t like uncertainty.

Traders are also bracing for monthly supply and demand reports from OPEC and the International Energy Agency. The release of these two reports could trigger a volatile reaction.

I’m looking for crude oil to pullback into support to give the major players another chance to reassess the impact of President Trump’s decision to withdraw from the Iranian nuclear deal.

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