U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are in a position to post solid gains for the week. The market continue to be underpinned by worries about a supply shortage. Traders are mostly concerned about the impact of the Iranian sanctions on global supply and whether Saudi Arabia and Russia can produce enough crude oil to offset the expected shortfall.
This week, traders have been primarily focused on the impact of the Iran sanctions. The concerns are how much oil will be removed from the global supply and whether OPEC and its allies can make up the difference. The numbers are still being debated and traders may not know close to the exact amount until shortly after the sanctions begin on November 4.
Shortly after the U.S. announced the sanctions on Iran, the market estimated a reduction of between 500,000 and 2 million barrels per day of crude oil. A little after that, Saudi Arabia and Russia announced they would increase output by about 1.4 million barrels per day. This is currently where we stand with speculative buyers being driven by the notion that the increased production will fall short of the lost output.
Last week-end, OPEC and its allies discussed increasing production by another 500,000 barrels per day, but this idea was rejected because Saudi Arabia is worried it might need to limit output next year to balance global supply and demand as the United States pumps more crude.
Although the price action…