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Oil Prices Cling to Bullish Formation, Iran Warns of Crude Shortage

Oil Prices Cling to Bullish Formation, Iran Warns of Crude Shortage

David Song,
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Oil Talking Points

Crude continues to pullback from the 2018-high ($76.88) even as Iranian Oil Minister Bijan Namdar Zanganeh warns that the energy ‘market is in short supply and is rightly nervous about the severe shortage of oil in the coming months,’ and recent price action raises the risk for further losses as oil extends the series of lower highs & lows from the previous week.

Image of daily change for major financial markets

Oil Prices Cling to Bullish Formation, Iran Warns of Crude Shortage

Image of daily change for crude oil prices

Oil prices appear to be under pressure as the Trump administration is actively mulling waivers on Iranian sanctions that it will be re-imposed next month, and the U.S. may increase its efforts to combat higher energy prices as President Donald Trump argues that ‘reliance on a single foreign supplier can leave a nation vulnerable to extortion and intimidation.’

Image of eia field production of crude oil

However, the key themes underlying the energy market may keep oil prices afloat over the near-term as the Organization of the Petroleum Exporting Countries (OPEC) and its allies show little to no interest in boosting production, while recent updates from the U.S. Energy Information Administration (EIA) show U.S. crude output holding steady at 11,100K b/d in the week ending September 28. In turn, developments surrounding OPEC and its allies may continue to influence the broader outlook for oil, and the current environment may fuel the recent advance in crude prices as there appears to be an ongoing change in retail interest.

Image of IG client sentiment for crude oil prices

The IG Client Sentiment Report shows 42.3% of traders are still net-long crude, with the ratio of traders short to long at 1.36 to 1. In fact, traders have remained net-short since September 21 when oil traded near $70 even though price has moved 5.7% higher since then. The number of traders net-long is 7.1% lower than yesterday and 8.0% higher from last week, while the number of traders net-short is 4.0% lower than yesterday and 13.5% lower from last week.

Despite the recent decline in short interest, the persistent skew in retail position offers a contrarian view to crowd sentiment especially as both price and the Relative Strength Index (RSI) cling to the bullish formations carried over from August. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

Oil Daily Chart

Image of oil daily chart
  • Broader outlook for oil remains constructive following the close above the $75.20 (78.6% expansion) to $75.80 (100% expansion) hurdle, but recent price action keeps crude vulnerable to further losses as it extends the series of lower highs & lows from the previous week, while the RSI continues to fall back from overbought territory.
  • The $72.00 (78.6% expansion) to $72.70 (50% expansion) region now sits on the radar as it lines up with channel support, with a break/close below the stated region raising the risk for a move back towards $70.70 (50% retracement) to $71.00 (50% expansion).

For more in-depth analysis, check out the Q4 Forecast for Oil

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.