Oil Price Fundamental Daily Forecast – Wiping Out Entire Iran Sanction Premium

U.S. West Texas Intermediate and international-benchmark Brent crude oil are trading sharply lower on Friday shortly before the U.S. opening.

At 1010 GMT, July WTI crude oil futures are trading $69.39, down 1.32 or 1.87%. July Brent crude oil is also weaker at $77.30, down $1.49 or -1.89%.

Prices fell on Thursday as traders priced in the possibility of increased production from OPEC for the first time since 2016. This news offset potentially bullish supply disruptions from both Venezuela and Iran.

Also worrying bullish crude oil traders was a sustained rise in gasoline inventories just ahead of the Memorial Day holiday in the United States, which typically marks the start of the summer driving season.

Forecast

WTI and Brent crude oil are under pressure on Friday as traders react to the news that Russia hinted it may gradually increase output after withholding supplies since 2017 together with producer cartel OPEC.

The main trend turned down on the WTI daily chart with the market currently testing a key technical retracement zone at $69.84 to $69.11. The market is also trading at price levels not seen since President Trump announced renewed sanction on Iran on May 8.

The minor trend turned down on the daily chart with prices rapidly approaching a short-term retracement zone at $72.37. We could see a technical bounce on the first test of this zone, but if it fails, we could see a further acceleration to the downside.

Russia has been floating the idea of ending the production for several weeks, with energy minister Alexander Novak saying on Thursday that restrictions on oil production could be eased “softly” if OPEC and non-OPEC countries see the oil market balancing in June.

Prices are likely to remain under pressure all session now that the entire Iran-sanction premium has been nearly wiped out by aggressive shorting and profit-taking.

The sell-off is not a complete surprise since recent government data showed that hedge and commodity fund managers had been liquidating positions for weeks.