Supply Disruption Fears Fade After Trump’s Iran Assurances
Looking back, this week’s earlier surge to its highest level since September 29 was fueled by the fear of a supply disruption. Short-covering and speculative buying drove the rally to $62.20 in anticipation of an attack on Iran by the United States and a potential disruption in supply. But when President Trump took that off the table by saying he was satisfied that there wouldn’t be any more killing of protesters, speculators realized the odds of a supply disruption had fallen and that the market was overpriced. This triggered the sell-off into the retracement support zone.
Geopolitical Premium Persists Despite Reduced Threat
Sticking with the fundamentals, while U.S. military action against Iran and the possibility of a supply disruption have been dampened, they haven’t been eliminated, which means prices will continue to remain propped up but much closer to value.
Rising U.S. Inventories and Venezuelan Output Cap Upside
Another factor capping gains is supply. “Despite the steady drumbeat of geopolitical risks and macro speculation, the underlying balance still points to ample supply,” said Phillip Nova analyst Priyanka Sachdeva.
On Wednesday, the U.S. Energy Information Administration (EIA) reported that crude stockpiles in the U.S. rose by 3.391 million barrels in the week ended January 14, worse than the expected 1.7 million barrel draw.
In addition to the U.S. inventory build, Venezuela has begun rolling back oil production cuts imposed under a U.S. embargo. With crude exports expected to resume, the fear is supply will continue to grow.
