Starting with the Khashoggi case and as analysed in last week’s oil outlook and despite opposing opinions, we continue to share the view that the case is not expected to have a substantial effect on the oil market, at least not currently. It would be evident that Saudi Arabia’s energy minister Khalid al- Falih, stated on Monday that there is no intention to use oil as a weapon and Saudi Arabia intends to have a constructive and responsible role in world energy markets.
The main issue which seems to come into play once again, are worried about the supply side of the oil market as US sanctions against Iran are expected to kick in on the 4th of November. Worries increased as the Iranian oil minister Bijan Zanganeh stated once again that there is no replacement for Iranian oil in the market. He also indicated that Saudi Arabia and Russia have neared their highest corresponding output level and that they have no spare capacity to pump more oil in order to replace Iran’s oil.
On the other hand, Saudi Arabia stated on Tuesday that it would continue to satisfy the demand for oil despite the looming US sanctions against Iran, which are expected to reduce oil exports from Persia. The Saudi Energy minister Khalid al-Falih specifically, reassured the markets as he stated that they (oil producers) will decide if there are any disruptions from supply, especially with the Iran sanctions looming and that they would continue with their current mindset, which is to meet any demand that materialises to ensure customers are satisfied. Al-Falih also stated that Saudi oil output could be 1-2 million barrels per day (BPD) higher than current levels in the future as oil demand growth is expected to keep rising, however, no timeframe was mentioned. The statements were made at an investment conference in Riyadh, where Saudi Arabia signed deals worth of more than 50 billion USD of infrastructure for oil, gas and other sectors.
The supply side though was supported recently also, by the increase of output by other countries. The most indicative would be Iraq, which is a growing oil producer, set to become one of the world’s key players. Iraq according to recent headlines, has surpassed Canada this year as the world’s fourth-largest oil producer. Iraq’s Oil minister Jabbar al-Luaibi said on Saturday that the country is producing a record 4.78 million BPD and is set to reach 5 million BPD in 2019 and 7.5 million BPD until 2024. However, concerns still exist on Iraq’s ability as the country lacks infrastructure and may be prone to political instability.
As a conclusion, we would like to address the demand side of the oil market. Oil prices dropped last Thursday and a number of analysts attributed it partly to concerns that there may be an adverse impact on oil demand from the escalation of the trading dispute between the US and China. Backing the above argument, we would like to remind our readers that IMF’s economic growth forecasts for 2018 and 2019 have slowed down, partly to the negative effect of trade policy tensions and import tariffs. Analysts point out also that major US refineries are entering a maintenance season, weakening demand and pressing oil prices down. Such arguments were backed by yesterday’s API weekly crude oil inventories figure which came out to be a surprise +9.88 million barrels injection. We see the case for today’s EIA weekly crude oil inventories figure to play a major role in oil prices for next week, as if it is indicative of a slack in the US oil market, oil prices may feel additional pressure.
WTI, 4-Hour chart
- Support: 66.00 (S1), 64.75 (S2), 63.35 (S3)
- Resistance: 67.35 (R1), 68.50 (R2), 69.90 (R3)
WTI prices continued to tumble yesterday, as the release of the API weekly crude oil inventories figure showed a substantial injection of 9.88 million barrels. Currently, there are some signs of stabilisation near the 66.00 (S1) support line, which is a four-month low. It should be noted though that the reading has spurred worries among investors, for a slack in the US oil market and should today’s release of the EIA weekly crude oil inventories confirm it, we could see oil prices dropping even further.
Technically, we retain our bearish bias as the downward trendline, incepted since the 10th of October and tested once again yesterday, remains intact. It should be noted though that the RSI indicator in the 4-hour chart remains below the reading of 30, implying an overcrowded short position.
Should the bears continue to dictate the commodity’s direction, we could see it breaking the 66.00 (S1) support line, aiming for the 64.75 (S2) support level and should even that be broken, the path would be paved for the 63.35 (S3) support barrier.
On the other hand, should the bulls take over, we could see oil prices breaking the 67.35 (R1) resistance line, aiming for the 68.50 (R2) resistance area, and should that area be breached, doors are opening wide, for the black gold to reach last weeks’ highs, of the 69.90 (R3) hurdle.
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