Oil hits 1-week high and moves back near prior resistance

Summary:

• Oil rallies to highest level in a week

• Price gains come as the US enter and stocks recover

• Iranian sanctions and hurricanes in focus

The price of oil has made a clear push higher in the past hour with Brent crude (Oil on xStation) hitting its highest level in over a week. The market had been meandering pretty aimlessly so far this week but the recent gains reveal a clear impetus to the upside as price looks to gain traction above the $78 handle. This region around 78.20 has previously been something of a swing level and if this move above can stick then the market looks set to retest the 2018 peaks around $80 a barrel.

Oil has rallied since the US entered this afternoon and the market could now be set to push up and retest the year-to-date peak around $80 a barrel. Source: xStation

While the push does seem to have begun with the entry of US participants into the markets today there are a couple of fundamental factors which seem to support higher prices. First off, the US sanctions on Iran are becoming a greater focus for traders as the November deadline draws nearer and should the supply shock be as large as some expect then there could be plenty of upside to come.   

"If there was not that set of sanctions, I think prices would go to $70 or even a little bit lower. But now the sanctions threat is real and less than two months in front of us, that will transform the market into much higher prices," Fereidun Fesharaki, founder and chairman of consultancy FACTS Global Energy said. Iran is currently one of the largest oil exporters in the world. Cutting off Iranian supplies entirely would push oil prices above $100 per barrel because other major producers could not easily fill the void, said Fesharaki.

Another factor to keep an eye on is that it’s hurricane season in the US and this threatens to cause near-term supply shocks. Last week tropical storm Gordon caused a couple of rigs to be abandoned in the gulf of Mexico which saw a quick spike higher in oil before the gains were reversed when the damage was minimal. Hurricane Florence is now growing and weather reports suggest it could be potentially the strongest storm to hit the Carolinas since 1954. It is currently forecast as category 4 with 140 mph winds and landfall is expected by Thursday night/ This isn’t expected to have much impact on any oil rigs but it is worth keeping an eye on as it serves a timely reminder of the possible supply disruptions which could occur at present.

Tonight sees the weekly private API inventory data released before tomorrow’s DOE number, which is back at 3:30PM. Consensus forecasts call for a build of 1.5M after a draw down of 4.3M last time out.

The bigger picture for Oil shows that price is once more approaching the upper echelons of its recent range. The last two attempts around 80.50 have been met with rejections with the most recent making a high of 79.71. Any reversal signals on D1 could present nice short opportunities but a break above 80.50 would pave the way for a substantial push higher. Source: xStation