Speculators, betting on a possible U.S. military strike against Iran defended prices against a collapse and weak short sellers covered positions ahead of the three-day Martin Luther King holiday weekend on Friday, leading to the higher close.
Although it could be weeks before any military action could take place, traders are noting that the U.S. Navy’s aircraft carrier U.S.S. Abraham Lincoln is expected to arrive in the Persian Gulf next week after operating in the South China Sea.
Earlier in the week, the U.S. benchmark hit a multi-month high after protests flared up in Iran and U.S. President Trump signaled the potential for military strikes, but lost over 4% on Thursday as Trump said Tehran’s crackdown on the protesters was easing, reducing concerns of possible military action that could disrupt oil supplies, Reuters reported.
Supply Concerns Create Conflicting Pressures
While a possible supply disruption is helping to establish a price floor, worries over increased supply may be capping gains. Traders are monitoring potential supply increases from Venezuela, which raises the risk that some of the recently embargoed oil may flow into the world market.
Some analysts are saying that despite the geopolitical risks, the underlying fundamentals point toward ample supply. But, increased Chinese demand or an actual production disruption, could send prices higher. Otherwise, the market may be poised for a rangebound trade.
Technical Outlook Points to Range-Bound Action