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US West Texas Intermediate crude oil futures are able to close lower for the week after making all of their previous gains. The week began with an uptrend in the face of speculation by OPEC and its allies, who would go beyond, or even increase, their production cuts. However, prices fell midweek as reports began to swirl that President Trump was considering easing sanctions against Iran. would lead to an increase in supply.
Essentially, the bullish sentiment at the start of the week was fueled by supply-side optimism. The downward trend at the end of the week is fueled by a pessimistic demand outlook.
Bullish factors
The bullish factors this week are the appointment by Saudi Arabia of a new oil minister, OPEC, as well as the commitment of its allies to further reduce the production of oil. , 2 million barrels a day, a larger-than-expected reduction in crude oil inventories in the United States and optimism sparked by a potential breakthrough in the US-China trade dispute.
Saudi Minister of New Energy
What excites the bullish traders this week is the appointment of the King of his Saudi son, Prince Abdulaziz bin Salman, to the post of Energy Minister this Sunday.
Prince Abdulaziz is not new to the oil game. A long-time member of the Saudi delegation to OPEC, he is familiar with how it works. On Sunday, he said that the pillars of Saudi politics would not change and that a global agreement to reduce oil production by 1.2 million barrels a day would be maintained. This is good news because this plan has been supporting the market for at least two years.
Prince Abdulaziz also added that the so-called OPEC + alliance, composed of OPEC producers and non-OPEC producers, including Russia, would be in place in the long run.
Weekly Inventory Report of the US Energy Information Administration
The EIA announced Wednesday that US crude inventories fell by 6.9 million barrels for the week ended Sept. 6. The traders were looking for a draw of 2.8 million barrels.
The EIA report also revealed a weekly drop in supply of 700,000 barrels of gasoline, while distillate inventories increased by 2.7 million barrels. Analysts were looking for a 1.4 million barrel gasoline draw and 220,000 barrels of distillate supplies.
Bearish factors
The bearish factors that halted the start of the recovery and led to a sharp drop in prices over the past three days were rumors that President Trump would ease sanctions against Iran in goodwill before a meeting with Iranian President Hassan Rouhani, and reports from OPEC and IEA pointing to a surplus oil next year.
Washington can ease sanctions against Iran
The dismissal this week was triggered by the dismissal of National Security Advisor John Bolton and a report that President Trump was considering easing sanctions on Iran, which could increase Global supply of crude at a time when producers are worried about the slightest growth in global demand.
According to Bloomberg, Trump discussed easing sanctions against Iran in order to allow a meeting with Iranian President Hassan Rouhani later this month.
The Bloomberg report, attributed to three anonymous sources, indicates that Bolton pleaded against this step. Maybe that's why he was fired or left his position earlier in the week.
The easing of sanctions on Iran will not only lead to the production of new oil on the market, but experts say that it could come to the market before the end of the year. This is a big concern because even if the US and China reach an agreement to end the trade war in October, two months will not be enough to increase demand, which will further exacerbate the supply oversupply. World.
The arrival of more oil on the market will also jeopardize OPEC's attempt to reduce supply and price stabilization by reducing the output of its members and major allied producers.
IEA seeks to reduce growth in demand
The International Energy Agency (IEA) has left its oil demand growth forecast unchanged at 1.1 million barrels per day for 2019 and 1.3 million barrels per day in 2020. She based these projections on the assumption that it would no longer deteriorate in the economic climate and in trade disputes.
Technical analysis
Weekly Technical Analysis of November WTI Crude Oil
Analysis of weekly trend indicators
The main trend is down. A $ 60.77 transaction will change the main trend. A move of $ 50.48 indicates a resumption of the downward trend after several weeks of contraction in prices against the trend.
The main range is $ 73.52 to $ 45.05. Its retracement area of $ 59.29 to $ 62.64 is a resistance.
The minor range is $ 45.05 to $ 65.23. Its $ 55.14 to $ 52.76 retracement area is a support.
However, the market has rebounded between the retracement zones since early June, while producing a pair of lower and lower peaks, indicating a bearish bias.
Forecast of the weekly trend indicator
Based on this week's price action, the direction of the November WTI crude oil futures contract for the week ending September 20th will be determined by the operators' reaction to the minor level. 50% to $ 55.14.
Bearish scenario
A sustained movement of less than $ 55.14 would indicate the presence of sellers. If this movement creates enough downward momentum, ensure that sales extend to the minor level of 61.8% to $ 52.76. This is a potential trigger point for acceleration in the main bottom at $ 50.48.
Removing $ 50.48 will mark the recovery of the downtrend with $ 45.05 next potential downside.
Bullish scenario
A sustained movement above $ 55.14 will mark the return of buyers. If this movement creates sufficient upward momentum, we could see a new trial of $ 58.64, followed by the main level of 50% to $ 59.29.
Overall view
Feelings changed this week when crude oil traders moved from optimism sparked by the drop in supply to pessimism sparked by the possibility of increased supply.
We are also in a market focused on news. Instead of prices being determined by weekly inventory data, traders are now watching and reacting to news about easing trade tensions between the US and China, and the possibility that President Trump soften sanctions against Iran.
The easing of sanctions against Iran will however constitute the most important event since it will likely have an almost immediate bearish effect on supply, while progress in trade discussions will have a limited effect on demand until the announcement of a genuine trade agreement. And even then, it will take time before it has a positive impact on the growth of demand.
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