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James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished lower last week with investors slowly shifting their bullish concerns about supply to bearish worries over demand. At times, traditional supply/demand fundamentals gave way to external market influences such as the plunge in global equity markets.

The relentless selling pressure drove the West Texas Intermediate futures contract to its lowest level since September 21, leading to its first loss in five weeks. Brent futures hit its lowest level since September 24, finishing lower for the first time since the week-ending September 7.

For the week, December WTI crude oil settled at $71.18, down $3.08 or -4.15%. January Brent crude oil closed at $80.07, down $3.72 or -4.65%.

A wide variety of factors influenced the price action last week, including Hurricane Michael, demand growth concerns and increasing U.S. production.

According to reports, Hurricane Michael led to a loss of about 630,107 barrels of production per day. OPEC cut its forecast of global demand growth for oil next year for a third straight month, citing headwinds facing the broader economy from trade disputes and volatile emerging markets. OPEC also said it sees the oil market as well supplied and is wary of creating a glut next year.

According to the U.S. Energy Information Administration (EIA), U.S. commercial crude oil inventories rose 6 million barrels the week-ending October 5. Investors were looking for a build of about 2.3 million barrels.

The EIA also said refineries last week operated at 88.8 percent of capacity, processing 16.2 million bpd of crude and producing 9.7 million bpd of gasoline and 5 million bpd of distillate.

Forecast

This week’s direction will be largely influenced by trader reaction to key retracement zones on the weekly chart. December WTI crude oil has potential support at $70.10 to $68.54 and January Brent crude oil has a target of $78.73.

These zones represent value and are expected to be attractive to buyers. The weekly trend is up for both futures contracts, however, due to a slight change in the fundamentals, which has investors looking at demand concerns rather than supply worries, investors will likely be seeking value instead of buying strength.

We’re looking for buyers to show up on a test of these zones. If they fail as support, this won’t change the trend, but it will signal a shift in momentum to the downside.

Stock market volatility and supply/demand concerns will continue to influence the price action. Crude oil bulls have no control over the volatility in the stock market. All they will be trying to do is keep the bull market intact until the sanctions against Iran begin on November 4.

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