Will Market Share Fight Drive Crude To Below $30? Sellers Building Up Pressure

The fight for market share among OPEC producers once again spurred worries over the global crude oil glut while U.S oil producers, exploration companies and refiners came back to the game after oil price bounced back from 13 year lows hit a few months ago.

Iran has never been a Saudi ally and has publicly stated its intentions to keep raising its output regardless of OPEC’s attempts to boost the crude price. After dropping to number four in OPEC production rankings, following international sanctions that restricted its supplies in 2012, Iran has set a goal to claim back its position by ramping up production. The country has boosted crude production by 25 percent this year and aims to reach an eight-year production high with a planned daily output of 4 million barrels by the end of the year.

According to shipping data, since the sanctions on Iran were eased in January, crude exports to Asian clients have increased significantly. Japan’s purchases surged 28%, India bought 63% more, South Korea’s imports more than doubled while shipments into China gained 2.5 percent during the first half of 2016, contributing to a reclaiming of 80 percent of the market share the Persian Gulf state held before sanctions.

The Asia-Pacific region is predicted to be Iran’s bread and butter as its demand is forecast to reach 32.81 million barrels a day this year, outstripping demand in the Americas, which is forecast to use 31.3 million barrels daily, according to the Paris-based IEA.

That is the reason why Saudi Arabia – OPEC’s largest exporter would also like to increase its share in this market. Saudi Aramco – The State-owned Saudi Arabian Oil Co. on Sunday said that it will cut the price for September shipments to $1.10 a barrel, $1.30 below August quote. This is the biggest drop since November, and is especially significant after the hike that was deployed in June on optimism regarding returning demand.

As a whole, supply from the Organization of the Petroleum Exporting Countries is set to rise to record high 33.41 million barrels per day (bpd) in July from a revised 33.31 million bpd in June. Production in Nigeria and Libya has also been restored.

Also on the supply side, the number of rigs drilling for oil in the U.S. climbed by 3 to 374 last week, marking the fifth straight weekly gain, according to Baker Hughes.

Meanwhile, demand for crude is supposed to retreat in the next few months as U.S. refineries reduce operating rates to perform seasonal maintenance following the end of the summer driving season.

Markets are betting against the crude price. In particular, short positions in WTI have increased by 38,897 futures and options contracts combined, according to data from last week. Hedge funds have been the biggest short sellers in WTI in the recent few days. Short positions in Brent have also witnessed an advance for a seventh week on the trot.


Fig: WTI H4 Technical Chart

September U.S light, sweet crude has been paring some losses lately to recover from the low of $39.80 formed yesterday. The three and a half month record low has brought in some shorts to the market to take profits and cut their short positions. However, based on the past moves in the price, this is expected to be a short corrective bounce, when there is no support from fundamental side. The two moving averages moving above the price action are anticipated to send the crude price lower.

Trade suggestion

Sell Stop at 39.80, take profit at 38.85, Stop loss at 40.50.

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