After a brief fall to contango in June, ICE Brent Crude returned to backwardation in July and the spread has been widening in recent days. The Key reasons for the situation are sanctions on Iran and potential decline in supply of Forties (the available barrels of North Sea Forties blend Crude Oil, the largest component of benchmark Brent Crude as a result of an export program in September).
Strength in Crude Oil prices was helped by the US’ and its allies’ sanctions on Iran’s oil exports, the data shows that Iran’s shipment has dropped -1.2M BPD since the EU sanctions became effective on 1 July. This represents about 50% of the original output of the Middle East country.
In coming months, the situation will likely tighten as the US intensified sanctions by penalizing foreign banks that handle transactions for National Iranian Oil Company (NIOC) or its subsidiary Naftiran Intertrade Company.
The US has now placed sanctions on China’s Bank of Kunlun and Iraq’s Elaf Islamic Bank.
Note: the Bank of Kunlun is a regional bank in western Xinjiang province with 82% held by CNPC, this round of sanctions would further limit China’s ability to buy Crude Oil from Iran.
The Brent Crude contract is based on 4 North Sea Crude Oils – Brent, Forties, Oseberg and Ekofisk.
While Forties is the largest stream and the most important Crude Oil for setting prices, its supply is expected to decline as Nexen (NYSE:PB) has planned to close Buzzard for maintenance, the largest field with over 70% Crude Oil feed to Forties
Power consumption has also been support by hotter-than-normal weather in the US this Summer. This factor will continue to help in August and as long as the weather is “Hot enough”, robust demand would sustain current price levels. However, as Winter comes, I believe price will falter and probably slip back to $2.00 range.
Crude Oil rebounded late last week, but upside is still limited to below 92.94, the short term top.
Initial bias remains Neutral and more consolidation cannot be ruled out. But, even in case of another decline, near term outlook remains Bullish as long as 83.65 support holds. As I noted before, the decline from 110.55 should have finished at 77.28. This rebound should extend and break of 92.94 will target 61.8% fibo retracement at 97.84 and above.
The Big Picture: the price actions from 114.84 are viewed as a 3 wave consolidation pattern with the fall from 110.55 as the 3rd leg. Such a decline may have finished earlier than we expected at 77.28. Sustained trading above 90, the psych mark, will bring stronger rally towards 114.83, the Key resistance. And a break there will resumption whole up-trend from 33.2.
On the Downside: another fall cannot be ruled out, but even in that case, strong support should be seen below 74.95 and above 61.8% fibo retracement of 33.20, and bring another medium term rise.
The Long Term Picture: Crude Oil is in a long term consolidation pattern from 147.27, with 1st wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it is the 2nd wave of the consolidation pattern. While it could make another high above 114.83, I anticipate strong resistance ahead of 147.24 to bring reversal for the 3rd leg of the consolidation pattern
For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
No comments:
Post a Comment