As wrote last week, crude oil prices remain sensitive to the narrative of slower supply growth. Today, there are no shortages of news stories that are helping this narrative. While Trump failed to 'certify' the Iran deal last Friday, he also didn't walk away from it entirely. Looking at reactions in markets, crude oil prices initially fell on the news and then bounced back. The bigger news today is that Iraqi military forces have seized a refinery and gas plant in Kurdistan. While there is no news of any violence, crude oil prices rose sharply following the news. The Kurdistan region has significant proven crude oil reserves, while Iraq (as a whole) is a top five crude oil exporter. Armed conflict in the region can result in substantially higher crude oil prices going forward.
This morning, both Brent crude and WTI are up. WTI remains above $50, and is currently trading just above $52.00. Brent crude is currently above $57.80. After entering overbought conditions two weeks ago, crude oil is now trading within a normal range.
Looking at US crude oil stocks, last week EIA figures showed falling crude oil stocks and rising gasoline inventories. While crude oil inventories fell slightly more than expected (2.7m vs. 2.4m barrels expected), gasoline stocks surged (2.5m vs. 0 expected). US crude inventories have been falling as a significant portion of Gulf Coast refiners remain offline thanks to Hurricane Harvey. Looking at reactions in markets, crude oil prices fell following the EIA report, which also showed growing US oil exports.
After rising sharply on October 10, we are upgrading crude oil to bullish. Saudi Arabia recently committed to reducing exports in November while significant US offshore production remains offline. We earlier warned that crude oil looked overbought in the last week of September, based on various technical indicators when looking at a daily chart. Since then, the commodity has returned to normal trading conditions.
After a strong performance in the second week of October, we are now bullish on crude oil in the medium-term. Crude stocks continue to fall around the world, helping the 'rebalancing' narrative. Furthermore, the recent the seizure of Kurdish oil assets near Kirkuk and Trump's refusal to certify the Iran deal are increasing expectations of lower future supply. Looking at various technical indicators on the weekly chart, crude oil is looking neither overbought nor oversold, but remains within normal trading conditions.