As market participants in the most actively traded commodity in the world, crude oil, we must navigate commodity risk on a daily, weekly, monthly, quarterly, and yearly basis. Commodity risk refers to the uncertainties of future market values caused by the fluctuation in the prices of commodities that include: price risk, volume risk, cost risk, and geopolitical risk. Even though all of these are managed at any given time, the current geopolitical risk involving Iraqi forces taking Kurdish-held oil city of Kirkuk and the U.S.-Iran tensions rising in regard to potential sanctions, has kept the markets on edge and afloat the last few trading sessions. Conflicts, sanctions, and supply cuts are certainly the main ingredients to get long the oil complex, but when the music stops: i.e. Iraqis urgently calling for dialogue between the central government in Baghdad and the Kurdistan regional leadership to resolve the crisis triggered by the Kurdish independence referendum; Iran Deputy Oil Minister saying President Trump’s policy on Iran has little implication on Iran’s oil industry; and the uncertainty of supply cuts by OPEC beyond March of 2018; all of these equal a concoction brewing up a potential near-term pullback towards that all too magnetic level of $50 in West Texas Intermediate with $49.01 and $48.68 as major support levels.
For now, the path of least resistance towards the $53.53 channel-top is still within reach. Especially if we settle above yesterday’s high of $52.37. However, as of 12:15pm EST, WTI for November delivery is down $0.46 at $51.41, HO is down $0.0159 at $1.7970, and RBOB is down $0.0028 at $1.6141. So, it appears the markets have absorbed and digested all of the geopolitical risk for now and has decided to await tonight’s API estimates and tomorrow’s DOE Weekly Petroleum Status Report for further indications in any price risk going forward. Once again, we shall wait and see.