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Crude Oil Analysis: Oil Waivers Raises Risk of Key Support Break

Crude Oil Analysis: Oil Waivers Raises Risk of Key Support Break

2018-11-02 09:35:00
Justin McQueen, Analyst
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Oil Price Analysis and News

  • Iranian Waivers Ease Supply Shock Concerns
  • Surging Oil Supply the World’s Top Producers
  • Brent Contango Deepens

Iranian Waivers Ease Supply Shock Concerns

WTI and Brent crude futures continued to trend lower following reports that the US has agreed to let several countries keep purchasing Iranian oil. This also includes Iran’s top buyers, India, South Korea and Japan, while Chinese officials stated that talks were currently ongoing for waivers. As such, this has eased concerns over a potential supply shock from the imposition of oil sanctions on Iran and thus keeping oil prices on a downward spiral. A list of all countries receiving waivers is expected to be released on Monday.

Surging Oil Supply the World’s Top Producers

With Iranian sanctions on the horizon, oil production has been increasingly significantly in recent months from the world’s top producers. Latest data from the Russian Energy Ministry showed that the country increased production to 11.41mbpd to a fresh 30yr high. In the US, crude production posted a record high at 11.2mbpd with production rising at a faster pace than the fracking boom of 2014, while Saudi Arabia is pumping oil at 10.45mbpd and recently stating that they could boost oil supply by 1-2mbpd in the near term. In turn, the top three producers are supplying the market at a record 33.41mbpd. This in turn could keep the pressure on the energy complex.

Brent Contango Deepens

Structurally oil prices remain bearish as the Brent curve moves deeper into contango (Spot price lower than forward price). Consequently, this could see oil prices lower for longer as a contango market suggests a negative roll yield, prompting speculators to hold bearish bets.

IG CLIENT SENTIMENT Bearish Oil

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bearish contrarian trading bias.

Oil Price Chart: Daily Time Frame (Mar 2017-Nov 2018)

Crude Oil Analysis: Oil Waivers Raises Risk of Key Support Break

On October 24th I had mentioned that a break of the trendline increases likelihood of hitting $63.27. Yesterday, WTI hit lows of $63.17. As it stands, the 38.2% Fibonacci retracement is offering some support for prices and potentially it may spark a corrective move higher, while RSI hovers in oversold territory. However, with the sentiment increasingly bearish for the energy complex, a bounce back could offer opportunities for bears to make an assault on the $60 level.

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Difference between WTI and Brent crude

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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