Originally published by AxiTrader
QUICK SUMMARY
Oil bounced a bit Friday after the IEA said replacing the Iranian oil the US is sanctioning is “very challenging”. WTI is at $67.75 while Brent is at $72.85 this morning. That's a little higher despite the funk in other markets.
BIGGER PICTURE
The focus of oil traders Friday moved from the vicissitudes of demand flowing from what many see as an economic slowdown because of the trade battle to the challenge of replacing Iranian supply once the US sanctions bite.
That repointing of focus came after the Paris based IEA said that “As oil sanctions against Iran take effect, perhaps in combination with production problems elsewhere, maintaining global supply might be very challenging and would come at the expense of maintaining an adequate spare capacity cushion”.
Indeed that seems to be an issue.
As I’ve written before – and as readers know – the US has infrastructure constraints which limit its ability to scale too fast anytime soon, the Saudis have capacity but are already starting to use that, and of course Venezuela is in almost terminal decline.
Fundamentally these competing forces are likely to keep prices in a range until the outlook becomes clearer. That’s something a tweet from Reuters Energy correspondent John Kemp addressed over the weekend. You can see his tweet and 4 charts here.
Technically both WTI and Brent are finding solid support at the zone from which they both broke out to this years highs. This is solid and critical support. If it holds then a bounce is in the offing. I’m respecting $66.33 in WTI terms $71.00/25 in Brent terms. Here’s the weekly WTI chart.
Of course if markets really go into a funk I'd expect oil to be part of that. But the complicating factor right now is Iran and the sanctions. So I'm going to go with a break, if it comes, of the support zones. Otherwise I'm staying out of oil at the moment.
DATA:
Looking ahead it is very quiet on the data calendar front. Chinese loan and money supply data is about it. All eyes are going to be on Turkey and worries of contagion. For the moment that’s not happened to the extent we’ve seen in the past.
Have a great day's trading.