US Sanctions, Trade war and more impacting WTI Crude Oil market.
Entering November the oil market braced itself as the US threatened to isolate Iran due to their dispute on the nuclear deal.
The market may have withered with fear as days got closer only to realize the US sanctions on Iran have not been actually implemented.
The 5th of November was the day the US officially imposed sanctions on Iran but it was also publicized that the biggest oil purchasers were granted waivers.
Countries like China, India and Turkey along with others, which head the list of Iranian oil imports have been given some 180 day exemption period, in order to find other sources of oil glut but at the mean time can normally purchase oil from Persia.
The waivers on the major oil purchasers had the opposite effect of what the market awaited regarding oil prices.
Oil prices have been dropping since last week and followed up yesterday dropping even further.
Oil prices may have slid due to fears of oil producers not being able to manage oil demand once the Iranian sanctions would kick in, which may have caused oil production to rise sharply during the previous weeks.
This was confirmed by the API and EIA weekly crude oil figures both indicating surpluses as October proceeded to its end, confirming that strong production had taken place.
Oversupply almost always has the effect of weakening oil prices.
China as the biggest Iranian oil consumer has openly stated that their trade with Iran is fair and legal and the US should not interfere.
Russia has criticized the US for putting extra pressure on the world in general as the oil sanctions affect other countries but also affect supply and demand balances which means oil producers will have to make adjustments and be forced into new deals.
Previously, companies all over the world have publicly displayed their dislike of the US sanctions as their business could be affected in the future due to that.
It will be very interesting to see how Europe will react to the situation.
European officials and representatives mentioned in the past setting up mechanism to facilitate payments for Iranian oil exports and to continue trading.
Iranian President Hassan Rouhani said on Monday Iran will continue providing oil to the world despite sanctions imposed.
Iranian exports have seen some small decline during previous months but with waivers in the way, Iran is still in the picture and its oil glut is needed.
As a conclusion, oil followers, observing how oil prices have been moving, share the opinion that the market could be going through a cyclical peak.
Referring to the slump of 2014/15 Oil prices have increased for 33 months reaching a peak in the past October.
Similar circles have been produced during the late 90’s and late 2000’s.
The cycle starts with the oil market undergoing fast consumption and a slower increase in production, using surplus inventories which piled during the previous slump.
Then prices rise and calendar spreads tighten, consumption growth slows and production growth accelerates, eventually dropping prices which is the case at the moment.
Of course, a cyclical peak does not consider excluding Iran from worldwide supply.
Crude Oil has moved lower this week breaking all our previous levels, reaching prices that were last seen back in April 2018.
If the oil market continues its downfall, the next level could be the $61.78 (S1) support level and after that the $60.21 (S2) support area.
Passing below the psychological threshold of $60 per barrel, Oil prices could stabilize around the $58.29 (S3) support barrier.
On the contrary, if the commodity is purchased as low prices provide opportunities, Oil prices could climb to the $63.67 (R1) resistance level breaching it and moving high for the $65.50 (R2) resistance barrier.