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Oil Price Fundamental Weekly Forecast – Uncertainty Over Supply Leads to Heightened Volatility Concerns

By:
James Hyerczyk
Published: Apr 28, 2019, 20:24 UTC

We’re looking for heightened volatility this week since the question over how much oil will be removed from the market still hasn’t been answered. Furthermore, there is still some debate over whether Trump actually called OPEC and whether Saudi Arabia and its allies have agreed to raise production.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures went on a roller-coaster ride last week before finishing lower. Mixed fundamentals and heavy speculation helped drive the price action in both direction.

When it was all said and down, crude oil reached six-months highs, but only a few days later was struggling to hold on to its weekly gains. WTI had been on track of its eighth successive weekly gain, the longest weekly run since the first talk of 2015. Brent finished the week only slightly better, eking out a fifth weekly price gain, its longest winning streak in a year.

For the week, June WTI crude oil settled at $63.30, down $0.77 or -1.20% and June Brent crude oil finished the week at $72.15, up $0.18 or +0.25%.

Trump Administration Discontinues Iranian Waivers

On Monday, the Trump administration said it will not extend sanctions waivers to a handful of countries that import Iranian oil. Prices spiked higher because the decision to completely eliminate waivers by May 1 was a surprise, as the market expectation was for a more gradual reduction.

The waivers were lifted for five countries including China, India, Turkey, South Korea and Japan. The amount of oil the sanctions are likely to wipe from the market was a source of debate throughout the week. Some analysts put it as high as 1 million barrels per day (bpd), others pegged it at 500,000 bpd.

Supply is Tight, but No Shortage of Oil

Although fear of an oil shortage encouraged speculative buyers to spike prices higher, prices began to slip from their six-month high after the International Energy Agency (IEA) said that markets are ‘adequately supplied’, easing supply concerns.

In the statement, the IEA said that ‘global spare production capacity remains at comfortable levels’.

U.S. Crude Stockpiles Jump on Rise in Imports

U.S. crude oil stockpiles rose last week to their highest level in about a year and a half as imports increased, even as refiners sharply ramped up output ahead of the summer driving season, the Energy Information Administration.

Crude inventories rose by 5.5 million barrels in the week to April 19, much more than analysts’ expectations for an increase of 1.3 million barrels. At 460 million barrels, crude stocks sit at their highest level since October 2017.

Prices Tumble after Trump Comments

Crude oil prices fell as much as 4% on Friday after President Trump said he told OPEC to take action to temper fuel costs. “The gasoline prices are coming down. I called up OPEC. I said, ‘You’ve got to bring them down. You’ve got to bring them down,’ and gasoline’s coming down,” Trump told reporters.

Trump also wrote on Twitter, “Spoke to Saudi Arabia and others about increasing oil flow. All are in agreement.”

Weekly Forecast

We’re looking for heightened volatility this week since the question over how much oil will be removed from the market still hasn’t been answered. Furthermore, there is still some debate over whether Trump actually called OPEC and whether Saudi Arabia and its allies have agreed to raise production.

On Friday, the Wall Street Journal cited sources who denied that Trump discussed the matter with several high-level OPEC officials. The phone conversation that Trump claimed to have did not include OPEC Secretary General Mohammed Barkindo, Saudi Crown Prince Mohammed bin Salman and Saudi Energy Minister Khalid al-Falih, the sources said.

Furthermore, Falih said earlier in the week that there is no need to immediately start pumping more oil, and the kingdom will hike output only after customers ask for more supplies.

Unless OPEC and its allies completely abandon their strategy to cut production and trim inventories, I think investors are going to treat Friday’s steep break as a buying opportunity.

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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