U.S. Crude Leaves Volatility Behind After Tumultuous Week

Kenny Fisher

U.S. crude prices are flat in Friday trade. WTI futures for October delivery are trading at $58.78, down 0.01% on the day.

Is the Storm Over?

After sharp volatility early in the week, U.S. crude has been trading sideways. It’s been an action-packed week. Crude soared 12.8% on Monday, the largest one-day gain of the year. Crude hit a high of $63.37, its highest level since mid-April. However, WTI/USD coughed up 5.0% of these gains on Tuesday and then settled down. Although the volatility has resided, tensions have increased between the U.S. and Iran, with threats of further hostility weighing on risk sentiment.

$100 Barrel – A Bridge too Far

What’s next for oil prices? With crude soaring on Monday, some analysts have made headlines predicting prices of $100 a barrel. I do not share this view, barring a major armed conflict breaking out between Iran and the U.S. or its Gulf allies. The $100 level has proved to be a resilient level, having held firm since June 2014. At the same time, this week’s attack on a Saudi oil refinery points to the vulnerability of oil production facilities and has left investors nervous. The 70.00-level could be reached if there are further negative developments in the Persian Gulf, which is a distinct possibility. In the coming days, I would expect crude to remain close to the $60 level, possibly pushing past this line, but still remaining close by.

Crude Inventories Surprise with Surplus

The Energy Information Administration (EIA) weekly crude inventory reports have shown declines in recent weeks. This is indicative of declines in oil supplies and has put upward pressure on U.S. crude prices. A decline of 2.1 million barrels was expected in this week’s release, but the report instead showed a surplus of 1.1 million. This reading comes on the heels of a report from the American Petroleum Institute (API), which showed a surplus of 0.59 million. The surplus in crude supplies has pared the upward movement of crude prices. Still, crude has posted excellent gains of 7.4% this week, the best weekly performance since mid-June.

WTI/USD 4-Hour Chart

This article was originally posted on FX Empire