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Crude Oil Price Forecast: Crude Cracks $70/bbl on Iran Headlines

Crude Oil Price Forecast: Crude Cracks $70/bbl on Iran Headlines

2018-05-07 13:41:00
Tyler Yell, CMT, Currency Strategist
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Crude Oil Price Forecast Talking Points:

  • WTI Crude Oil Technical Analysis Strategy: A bullish technical market remains as traders are unlikely to aggressively short crude above $70/bbl. Given the geopolitical risk, the most significant concern could be a sell-the-news development on the Iran decision, but the uptrend remains intact north of $66.32/bbl of the front-month WTI contract.
  • The geopolitical bullish shock wave continues to ripple through the crude oil market on views that OPEC is set to over-tighten, bottlenecks are developing in US shale regions, and Iran may have fresh sanctions applied that could cut out supplies from OPEC’s third largest producer.

A busy Monday morning for WTI crude traders has developed that involved a move above $70/bbl. The headlines that grabbed the markets attention is a split developing within OPEC as Iran and Saudi see “Mission Accomplished” at different.

On Monday, Saudi energy minister, Khalid Al-Falih said that the goal of the production curbs is not to bring the inventories to the five-year averages, what the markets previously perceived because the five-year average has been inflated by the 2014-induced glut.

Rather, al-Falih said the focus is to bring ‘equilibrium’ to the market. Naturally, such qualitative measures allows for OPEC to potentially over-tighten the market in order to fetch the most attractive Saudi Aramco IPO valuation to further help the state and investors in Aramco, namely OPEC members and allies like Russia.

An additional headline risk remains Iran. Geopolitical tensions have continued to support the bullish oil market that has seen 2018 gains of ~17%. The current focus now is on the likely withdraw of the US from Iran Accord on Saturday, May 12. A key campaign promise from Donald Trump was to leave the “bad deal” though Iran has ruled out new talks and has called renegotiating the current deal “non-negotiable.”

Unlock our Q2 18 forecast to learn what will drive trends for Crude Oil in a volatile Q2

Bears Love To Talk Supply, But Often Negate Demand Growth

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Data source: Bloomberg

The chart above, one that recently caught my eye on the Bloomberg Terminal for Kyoungwha Kim, shows the rising demand from China via imports (blue area) and the American crude consumption in orange. Therefore, while there is likely a risk-premium backed into the price that could deflate if the Iran accord is kept that could take prices a bit lower, it is also fair to say that the aggregate drop of OPEC supply and rising demand are helping the fundamental argument for a validated bull market.

Technical Analysis – Brent Crude Oil Stays In Bullish Standing

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

Calling tops makes for much better marketing than it does trading. While WTI crude is up nearly 17% for 2018, the move since the June 2017 low just matched that off the 2016 low in the mid-$20/bbl range. In other words, the Fibonacci expansion target was just tagged.

However, the tag of an upside target doesn’t mean the trend is over, rather that the strength was enough to carry the market to the target. Traders should curb their bearish enthusiasm above the 26-day midpoint at $66.32. A hold above this level would likely favor a move to the top of the bullish channel toward $73/bbl.

Not familiar with Ichimoku? You’re not alone and in luck. I created a free guide for you here

WTI Crude Oil Insight from IG Client Positioning

Crude Oil Price Forecast: Crude Cracks $70/bbl on Iran Headlines

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Oil - US Crude prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bullish contrarian trading bias.

New to FX trading? No worries, we created this guide just for you.

More for You:

Are you looking for longer-term analysis on Crude Oil and other popular markets? Our DailyFX Forecasts for Q2 have a section for each primary currency, and we also offer an excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

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---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

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