Oil Price Fundamental Weekly Forecast – U.S. Assets in Middle East at Risk

U.S. West Texas Intermediate and international –benchmark crude oil futures are trading higher on Monday after spiking to the upside on Friday. Prices rose sharply at the end of the week after the Pentagon confirmed a U.S. airstrike had killed a high-ranking Iranian Major-General. Iran also vowed retaliation. Although no oil has been spilled, speculators are betting that an escalation of tensions between the United States and Iran will eventually effect the crude oil supply.

At 09:42 GMT, February WTI crude oil is trading $64.00, up $0.95 or +1.51% and March Brent crude oil is at $69.82, up $1.22 or +1.78%.

On Sunday, President Donald Trump threatened to impose sanctions on Iraq, the second largest producer among the Organization of the Petroleum Exporting Countries (OPEC), if U.S. troops were forced to withdraw from the country. Baghdad earlier called on American and other foreign troops to leave Iraq.

Trump also said that the United States will retaliate against Iran if Tehran were to strike back after the killing.

EIA Reports Bigger-Than-Expected Crude Inventory Drop

The Energy Information Administration (EIA) reported that U.S. crude supplies fell by 11.46 million barrels for the week-ended December 27. Traders were looking for a decrease of 3.1 million barrels.

The EIA report also showed supply increases of 3.212 million barrels for gasoline stocks and an increase of 8.776 million barrels for distillates. Traders had expected gasoline stocks to increase by 3.7 million and distillate stocks to add 3.2 million barrels. Supplies in the key Cushing, Oklahoma futures delivery hub fell by 1.449 million barrels, according to the government.

Baker Hughes Data Shows Rig Count Drop

Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil fell by seven to 670 the week-ending January 3. That followed a decline of eight oil rigs in the previous week. The total active U.S. rig count, meanwhile, was down nine from last week at 796, according to Baker Hughes.

Weekly Forecast

The waiting has begun. The major uncertainty now for traders is when and how Iran will respond to last Friday’s attack.

It’s become clear that the latest developments in the Middle East has put U.S. assets in the region at risk. This means we could see a disruption to the oil supplwith Iran disrupting Strait of Hormuz oil flows, or through attacks on energy infrastructure of U.S. allies in the region, similar to the attacks on Saudi Arabia oil production facilities in September.

Traders have to be careful about chasing the markets higher because like we saw in September, the market has supply flexibility. Additionally, the U.S. is likely to ramp up shale production.