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Oil Price Fundamental Weekly Forecast – Specs Betting U.S. Will Walkaway from Iran Nuclear Deal

By:
James Hyerczyk
Published: May 6, 2018, 10:17 UTC

The price action late last week strongly indicates traders are taking bullish positions in oil contracts into the May 12 deadline over Iran. Expectations that the U.S. will pull out of the deal and refrain from any further relief for Iran from sanctions are likely to continue to bolster prices next week.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil spent most of the week trading sideways-to-lower as concerns over renewed sanctions and tight global supplies underpinned prices and worries over increased U.S. production kept a lid on any rallies.

June WTI crude oil settled at $69.72, up $1.62 or +2.38% and July Brent crude oil finished at $74.87, up $1.08 or +1.46%.

June WTI Crude Oil
Weekly June WTI Crude Oil

By the end of the week, however, the price action indicated that the hedge fund buyers believe that President Trump will walk away from the Iran nuclear deal, leading to possible supply disruptions and even tighter global inventories in the second half of 2018.

Recently, Trump has said that unless European allies rectify the “terrible flaws” in the international accord by May 12, he will refuse to extend U.S. sanctions relief for the oil-producing Islamic Republic.

Iran’s foreign minister said on May 3 that U.S. demands to change its 2015 nuclear agreement with world powers were unacceptable as a deadline set by Trump for Europeans to “fix” the deal loomed.

In other news, crude prices fell at mid-week after the U.S. Energy Information Administration reported a surprise build of 6.2 million barrels in the week-ending April 27. Traders were looking for a build of only 1.0 billion barrels. Traders shrugged off the news because the surprise rise in inventories was largely concentrated on the West Coast where supply jumped nearly 5 million barrels.

Gasoline stockpiles also climbed by 1.2 million barrels for the week, while distillate stockpiles fell by 3.9 million barrels, according to the EIA. Traders were looking for a supply decline of 1 million barrels for gasoline, while distillate stockpiles were expected to be down by 1.3 million barrels.

Brent Crude Oil
Weekly July Brent Crude Oil

Forecast

The price action late last week strongly indicates traders are taking bullish positions in oil contracts into the May 12 deadline over Iran. Expectations that the U.S. will pull out of the deal and refrain from any further relief for Iran from sanctions are likely to continue to bolster prices next week.

There remains the question about how high prices could go due to rising U.S. production. Surging production in the Permian shale basin is outpacing pipeline capacity, while local refining issues have exacerbated oversupply in the region.

There are reports that West Texas Intermediate crude for delivery in Midland, Texas slid for a fourth day on Thursday to hit their lowest in more than three-and-a-half years. WTI at Midland traded as much as $14 a barrel below benchmark futures.

Furthermore, Baker Hughes reported its weekly count of U.S. oil rigs rose for a fifth consecutive week. The number of rigs operating in American oil fields rose by 9 in the last week to a total of 834.

We’re likely to see strength in the market if speculators continue to bet on the U.S. pulling out of the Iran deal.

However, given the rise in U.S. production, prices are likely to plunge sharply if the Europeans hand Trump a plan to save the Iran nuclear deal next week.

The Europeans don’t seem to be too confident that they will be capable of convincing Trump that their plan is viable. There are reports that they have also started work on protecting EU-Iranian business ties if the U.S. president makes good on a threat to withdraw.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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