Oil closed over $73 per barrel this week and was flirting with the $74 price level in what marks the highest price since early July. The tension between falling Iranian oil exports and the degree to which Saudi Arabia and its partners (OPEC+) may increase output is sure to occupy the market's attention over the next few weeks.
The state of the oil market was a hot topic at the Asia Pacific Petroleum Conference in Singapore last week, where analysts remained incredibly bullish on oil prices. Saudi Arabia recently said that it was comfortable with oil at $80 per barrel, signaling that the Kingdom may be slow to replace lost Iranian oil barrels. OPEC+ decided against immediate production increases at a meeting in Algeria last weekend, although Saudi Arabia indicated that it might increase production in September and October. Saudi Arabia is worried about creating a new supply glut on the back of expectations of a seasonal demand dip this winter.
Everyone on the $100-per-Barrel Bandwagon
With Brent oil trading comfortably over $80 per barrel, the market is now keenly focused on when oil will return to $100 per barrel. Analysts seem to be competing to see who will be the first to make this call correctly. For example, JPMorgan increased its Brent oil price forecast for 2018 by over $20 per barrel versus previous expectations. Bank of America Merrill Lynch has a price target for Brent at $95 per barrel by the end of the second quarter of 2019, and oil trading firm Trafigura said oil could hit the $100 mark by the end of the year.
Driving expectations of oil at $100 are press reports that crucial Iranian oil buyers like South Korea and India have already scaled back purchases ahead of the implementation of U.S. sanctions in November. A few analysts, however, are entertaining the idea that that U.S. sanctions against Iran may not stick. The European Union (EU) is laying the groundwork to bust U.S. sanctions. The EU announced that it would establish a special payments channel to maintain economic ties with Iran and protect European companies from U.S. retaliation after sanctions come into effect. If the mechanism works, more Iranian barrels could find their way to market than analysts currently anticipate.
Bullish Technicals Remain Strong
Oil continued its steady move higher last week, closing at $73.25 per barrel on Friday. The upward movement takes prices to their highest level since early July and increases the likelihood of the market testing $75 in the coming weeks. Price momentum is also active, with the 21-day exponential moving average continuing to pull away from the 55-day average and the moving average convergence divergence (MACD) indicator ticking higher as well.
Technical indicators on multiple time frames are also bullish. For example, on both the daily and weekly price charts, all 10 technical indicators are signaling buy, with no sell and no neutral signals. Moving averages are also extremely bullish. Out of 12 moving averages calculated using both simple and exponential mathematical formulas, all are indicating that oil is positioned to move higher.
The higher price close on Friday means that oil has now traded higher for three weeks in a row and is still in the Three Inside Up pattern discussed in a previous article on the weekly price chart. Three Inside Up is a bullish price pattern and suggests that oil still has some room to run. The fact that the relative strength indicator (RSI) is not yet showing that oil is overbought at these levels also supports the pattern.
Disclaimer: Gary Ashton is an oil and gas financial consultant who writes for Investopedia. The observations he makes are his own and are not intended as investment or trading advice. Oil price chart courtesy StockCharts.com.