Basic weekly oil price forecast – Do not be fooled by the demand

The Brent crude oil futures, West Texas and international, the US benchmark, ended the week up, but these are the most interesting weekly trips. Both futures flew early this week, but a wave of selling pressure has almost erased all these gains. However, by the end of the week, he was able to recover to support some of these earlier gains.

For the week, November WTI crude oil was established at $ 68.77, up $ 1.22 or + 1.81% and December's crude oil finished at $ 77.61, in up $ 1.14 or + 1.47%.

The reason for the upward bias continues to be the tightening of the market. The tightening is due to tighter supply conditions once Washington's sanctions against Iran's crude oil exports begin in November.

Traders are still unsure of the amount of oil that will be withdrawn from the market once sanctions have begun. But, news that India, Japan and South Korea are already reducing their purchases of Iranian crude oil suggests that their number will be larger than expected.

The conditions are bad. How badly do you ask? Bad enough for Russia's energy minister, Alexander Novak, to call the situation "fragile".

"This is a huge uncertainty in the market – how countries that buy nearly 2 million barrels a day of Iranian oil will act. The situation must be closely monitored, the right decisions must be made. "

Novak said geopolitical risk and supply disruptions shared responsibility for the "fragile" condition of global oil markets.

Novak also said: "This is because not all countries have been able to restore their market and their production." According to Traders, it referred to failures and the drop in production in Venezuela and Mexico.

However, he added that "Russia has the potential to increase production by 300,000 barrels per day (bpd) in the medium term, in addition to the level of October 2016".

Provide

A concern for bulls is future demand. Gains have been limited recently by reports that weak emerging markets and the impact of tariffs on the Chinese economy could lead to lower demand and offset the impact of sanctions.

The chronology of events is basically at the origin of the action on prices. The sanctions begin in November, which is a more immediate concern for traders. Any concerns about demand will come later. Therefore, the current tightening is the main concern underlying prices. In addition, this market is extremely vulnerable to any unforeseen interruption in supply and, where appropriate, prices could rise sharply.

In addition, on Friday, Secretary of State Michael Pompeo said he would hold a press conference on the new sanctions against Iran. This will certainly increase the chances of less oil coming from Iran.

Meanwhile, US energy companies added oil platforms last week for a second consecutive week, with crude prices trading at their highest level since summer 2015.

The latest news over the weekend, The Wall Street Journal reported on Saturday, citing people familiar with the subject that President Trump plans to impose a new series of tariffs targeting about $ 200 billion of Chinese products.

I do not think that the announcement of new tariffs will have much impact on the crude oil market since the idea was launched for more than a week. Tightening of supply will remain the main problem and this is bullish for prices.

This article was originally published on FX Empire

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