The U.S. sanctions on Iran begin

Yesterday U.S. sanctions against OPEC member Iran officially came into effect. The sanctions were not aimed at Iran’s oil exports instead they target Iran’s U.S. dollar purchases, metals trading, coal, industrial software and auto mobiles. U.S. sanctions on Iran’s oil exports have been given a 180-day “wind-down period” and will be enforced on the 4th of November. US President Donald Trump made it clear through his twitter account that any country doing business with Iran will NOT be doing business with the United States adding even more emphasis to the matter. Oil prices rose on Tuesday however intensifying concerns on further developments on the matter could affect the market economically and geopolitical.

Crude Oil rose yesterday, breaking the 69.54 resistance level and corrected back below that level later on. It must be noted that in August, most of Crude Oils movement has been between our 69.54 and the 68.43 Support level. Technically, the RSI indicator in the 4 hour chart remains near the reading of 50, implying a rather indecisive market. Should traders favor WTI long positions, we could see the commodity breaking the 69.54 resistance line and aim for the 70.57 resistance level. On the flip side, should traders favor WTI short positions we could see it aiming for the 68.43 support line and aim even lower. Further support may be provided today for Oil prices as the EIA Crude oil weekly figure is forecasted to release drawdown of -3.33 M barrels.

Saudis oil exports will remain at current levels

On Thursday, Saudi Arabia’s OPEC representative, stated the kingdom’s oil exports will be little changed this month. The Saudi governor stated that they were not trying to push oil into the markets beyond the customers’ needs. Today, ahead of the difficult OPEC meeting, lies the decision to increase supply, and if so by how much? The Oil market has suffered supply losses from Venezuela and Libya and adjustments to volume could be made. However, coming from a different perspective OPEC’s target to stabilize prices is not only to make profits but also to attract investment in the industry, which is at very low levels currently. Oil prices moved higher on the OPEC representative comments and strong volatility is expected during the meeting today.

Crude Oil’s price strengthened on the pre mentioned news with the commodity’s September Future moving and stabilizing just above our 68.10 support level. However, the commodity may prove to be very volatile during the OPEC meeting and strong price movement could be on the go. Should Oil find extensive buying orders along its path, we could see it rising and breaking the 70.19 resistance line and move higher towards the 71.65 resistance barrier. Should it come under selling interest by the market, we could see the pair breaking the 68.10 support barrier and move even lower towards the 66.58 Support level.

OPEC’s Compliance at 100%

Fundamental Analysis:

The recent developments in the Oil market have been rather enticing for Investors capturing the main focus of the market in the past days. OPEC’s meeting took place last week and it confirmed the market’s expectation of increasing supply. The result of the meeting was that crude oil supply should increase by as much as 1 million barrels per day. It must be noted that, OPEC and its allies have been very focused and disciplined with their agreement to cut supply previously. This discipline could also be translated as a very aggressive approach towards output and they may have left global demand somewhat uncovered for the time being.

Furthermore, a case could be made that only a few OPEC members have the capacity to produce Oil at higher levels or even the full volume of their targets levels. Of course, at the head of the list is Saudi Arabia and their fellow team mate Russia follow, but the question remains if these 2 countries can cover the demand in place which is seen increasing. Exports of Saudi Arabia have increased in the latest months and the decision to increase supply even further, could be an indication of misjudgment of oil demand.

On the other hand, as per OPEC and its ally’s agreement, it is not clear if a member is allowed to step in and cover for other countries shortfalls. More specifically, Venezuela and Libya which have significantly reduced their Oil production and exports due to political circumstances on the inside, cannot be covered by a member state because of OPEC’s legally binding agreement to cut supply. It is our opinion that the Saudi Kingdom could be under a lot of pressure from the US, in the following months, in order to increase exports and supply levels. However, from what the Saudis have revealed until now, they remain pretty cool and confident as they have never lost control and have been in line with their goals and targets in price and output. Yet, relying completely on the kingdom could be of significant risk, as until now they have been more on the side of keeping output stabilized in order to push prices higher.

The most recent news, coming from the international scene is that the US has pledged OPEC to increase Oil production with president of the US, Donald Trump opening up on his desire for Oil prices to remain low. OPEC announcement on Friday confirming that Oil Supply output will be increased had an adverse effect which found Oil prices rallying. The reason behind this market reaction could be that OPEC indicated a smaller than expected increase of production. OPEC’s compliance with the cutting agreement was over +100% and will now drop equal to that level and not below or above it. Moreover, Iran officials, have demanded that OPEC dismisses calls from the US for an increase in oil supply, arguing that the US was the reason of the recent rise in prices by imposing sanctions on Iran and fellow member Venezuela.

On a separate note, US Oil rigs were reduced from the previous week according to Baker Hughes. For the first time in 3 months, US oil rigs are seen reduced by -1 in comparison to last count. The Oil rigs counts is a measure of future demand and could have also impacted Oil prices, strengthening them but to somewhat minor degree compared to the pre mentioned news.

It will be very interesting to see how OPEC and its team mates will handle all the pre-mentioned issues. OPEC has most certainly shown its dominance in the Oil global market as even the US is reaching out publicly asking for more supply. OPEC has good reasons to be in good terms with the US. However, it is most probable they will not be able to please everyone and be on top as a group themselves but in our opinion they will not make significant changes any time soon.

Technical Analysis:

We start this analysis by noting that our previous 3 resistance levels $64.95,  $66.13, $67.60 have all been broken in the previous sessions and our now our support levels.

The commodity could be overtaken by a bullish movement causing it to move up towards the $69.55 resistance level and break it, moving further near the $70.50 resistance barrier.

Further statements on OPEC planned output increase could create turbulence for the black gold market.
If Crude Oil enters a bear market, we could see it moving downwards towards the $67.60 Support level and even breach it aiming for the $66.10 Support hurdle.

For the time being Crude Oil could be moving in a sideways movement between $69.55 resistance level and the $67.60 support level.