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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Is This Oil Rally Sustainable?

Trading Screen

July West Texas Intermediate crude oil is in a position to post its highest close since late 2014 on Friday. The rally is being driven by looming U.S. sanctions against major oil producer and OPEC-member Iran which threaten to drive prices even higher over the near-term as traders prepare for an even tighter supply situation.

This week’s speculative buying was initiated by President Trump’s decision on Tuesday to walk away from the Iran nuclear deal.

On the bullish side of the coin, the U.S. plans to re-impose sanctions against Iran, which produces around 4 percent of global oil supplies. The sanctions will be taking place at a time when OPEC-led production cuts have already tightened the supply situation. Additionally, global inventories have tightened amid strong demand from Asia.

Speculators are betting heavily that the sanctions will lead to supply disruptions that will make crude oil an attractive enough asset to drive prices to $80 -$100 per barrel later this year.

On the bearish side some traders believe prices won’t move nearly as high because of rising U.S. production and the possibility that other suppliers from within OPEC will step up output in order to counter the Iran disruption. This would essentially end the OPEC-led deal to trim production.

There is some chatter in the markets suggesting Kuwait and Iraq as two producers with the best ability to raise output quickly in response to any fall in Iranian exports.

Additionally,…

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