Oil Price Fundamental Daily Forecast – Will Hedge Funds Flip to Long-Side on Rising Middle East Tensions?

I have to conclude that cooler heads will prevail for the time being and negotiations will begin without any preconditions. The market is likely to remain underpinned by the threat of escalated tensions, but once we start getting inventories reports from the American Petroleum Institute (API) late Tuesday and the U.S. Energy Information Administration (EIA) on Wednesday, we should return to business as usual in the markets.
James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Monday as speculators continue to bet on a further escalation of tensions between the United States and Iran, and short-sellers continue to lighten positions in the wake of the unexpected developments over the past week or so.

At 09:05 GMT, August WTI crude oil is at $57.88, up $0.45 or +0.78% and August Brent crude oil is at $65.36, up $0.16 or +0.28%.

We’re not going to know for sure until we see the commitment of traders report from the U.S. Commodity Futures Trading Commission, but the next major move in crude oil hinges upon whether the hedge funds shifted from bearish to bullish in the wake of the recent attacks by Iran on two tankers, the shooting down by Iran of a U.S. drone, or the aborted attack by the U.S. on Iran last Thursday night.

We also don’t need anyone tell us at this point what a war between the two countries would mean to global stability. Obviously, it would lead to a massive supply disruption in the region if the main shipping area is closed for a prolonged period of time. But most of all, it would cause the loss of lives, which seldom seems to be mentioned by analysts trying to predict the direction of oil prices.

Furthermore, it could be a short-lived conflict or a long-term war because no one is certain how Iran’s allies will react to military action especially if it’s started by the United States. I suspect, however, that China and Russia would come to the aid of Iran and the U.S. would have to back down because I don’t think it will get any support from the U.K. or Canada in this one.

Therefore, I have to conclude that cooler heads will prevail for the time being and negotiations will begin without any preconditions. The market is likely to remain underpinned by the threat of escalated tensions, but once we start getting inventories reports from the American Petroleum Institute (API) late Tuesday and the U.S. Energy Information Administration (EIA) on Wednesday, we should return to business as usual in the markets.

From a technical perspective, WTI crude oil is inside a 50% to 61.8% retracement zone at $57.41 to $58.97 so we have to be aware of the possibility of a closing price reversal top. The key zone to watch for Brent is $65.93 to $67.46.

When it comes down to it, you always have to follow the money. Some analysts get excited about spikes in the market and turmoil, but if you’re really trading, you have to take everything in stride. Don’t play for the home run. Just trade your system, the big winners can’t be predicted, they just happen.

My analysis showed the trend turned up on the daily chart last week when buyers took out $54.99 on the WTI chart and $64.13 on the Brent chart. That’s all I know at this time. I also know that both are testing or approaching key retracement areas.

Furthermore, I also know they are nearing their 200-day moving averages that tend to get the hedge funds excited. These are the facts. War or no war I’m long as I know my exits. If you are buying because you think there is going to be a military conflict, then what’s your exit? No war, and how long do you wait for that signal.

 

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