Fresh Iran Sanctions Weigh On Oil

Crude Stores Rise

The latest report from the Energy Information Administration showed an unexpected build in US crude stores. The EIA report showed that in the week ending September 13^th, US crude store rose by 1.1 million barrels. This confounded expectations of a 2 million barrel drawdown. The data comes a day after crude traders were first spooked by the API reporting a 592k barrel increase in US crude inventories.

Gasoline Stores Rise

Elsewhere in the report, the data showed that gasoline stores surged by 781k barrels vs expectations of a 538k-barrel drawdown. Similarly, distillate stockpiles which include diesel and heating oil were seen higher by 437k barrels, though this was slightly lower than the 535k-barrel increase forecast.

The rise in US crude stores is the first net-positive movement in US crude stores for five weeks. It came amidst US crude imports rising by 445k barrels over the week.

In terms of domestic production, the EIA reported a daily processing rate of 16.7 million barrels for US refineries over the week ending September 13^th with gasoline and distillate production both rising.

Saudi Attacks Spark Record Crude Move

The crude market has had a turbulent session this week with prices fluctuating wildly in response to a number of drivers. Firstly, the week kicked off with a record move higher in crude by more than 20%.

This was at the Sunday open in response to news that Iran had carried out a drone strike on a Saudi oil processing site. The attack at the site, which is the largest in the world, knocked out more than 50% of total Saudi oil production.

US-Iran Tensions Rise

The events caused a sharp escalation in tensions between the US and Iran. The latter denied responsibility for the attack and warned the US that it was ready for a “full-fledged war”.

Oil prices remained elevated in response to these heightened tensions. However, later in the week subsided as President Trump (who had earlier tweeted that the US was “locked and loaded”) said he did not want a war with Iran.

Trump Announces Fresh Sanctions

As Saudi Arabia reported steady progress in recovering the lost output capacity from the attacks, oil prices subsequently reversed lower, erasing more than half of the initial gains on the week.

These losses then deepened as Trump announced a fresh set of sanction on Iran instead of engaging in military action.

Trump tweeted:

Trade Talks In Focus

For now, the market awaits the next set of headlines. Special focus will be on the progress of US-China trade talks. These are due to resume next month following preliminary meetings this week between US and Chinese officials. Positive developments here will keep oil supported while any breakdown in talks will be bearish for oil.

Technical Perspective

The breakout in oil this week saw price exploding above the bearish trend line from 2018 highs and above mid-2019 highs at 61.00. However, since then, price has reversed and is now trading back under the trend line.

The next test to the downside will be a retest of the ledge of broken higher around the 57.05 level. If price holds here we could see a further push higher. If price breaks, below here, focus will turn to a test of the rising trend line from 2018 lows.