This forecast was a day later than usual as I was waiting for the US-China talks today to be over. It is still on going, but I feel I can move on. The trading dates have change, and the target expiry date is on 19 Oct 2018.

The name of the game this time round is uncertainty.

Forecasting Checklist

• Oil industry news
  • Political Plays?
    • Trump wants lower oil prices in the run up to the US midterm elections. v
      • This is at odds with the US drillers who need a higher price to profit.
      • Even so, Trump doesn’t have as much power to bring down prices as some of the other countries, like Saudi and Russia.
    • China is continuing to buy Iranian oil, despite sanctions. v
    • However, other countries have cut back on Iranian oil, and I think even the China demand cannot fully replace the ‘lost’ Iranian oil supply. ^
    • The China-US trade war is spooking markets. v
      • However, the recent few days of price rises are due to USD dropping, and the oil reserves in US having a surprise draw down on the week ending 17 Aug 2018, i.e. last week. ^
      • This means that during last week, when there was a market spook over the trade war, oil demand was actually still pretty high. I would take it to mean that these trade war fears are currently still only fears and the underlying market numbers have not changed as much. Either that, or the effects of the trade wars have not been fully realised. I could even say that the trade war could have no effect on oil demand, but I don’t think that is the case. Still, I think these trade war fears are more overblown than they actually are right now.
  • Level of uncertainty?
    • As above, the level of uncertainty is still high. For example the US – China talks today, were not expected to resolve the trade war, but the meeting’s conclusions could still move in unexpected directions.
    • Right now there are two narratives at odds with each other. Both are expected to affect the oil price. The Iran oil production lost (along with some of the other unstable countries like Venezuela) will push prices up. On the flip side, the trade war will disrupt economic growth and bring down demand for oil, and thus push the oil price down.
      • The US economy has just broke the record for the longest bull run in history. If it’s been on a bull run this long, surely there must be a recession of some sort around the corner. The market has always worked in cycles. We just don’t know when or how the next significant bear market will happen. But when a bear market does hit, then oil prices will definitely head downwards.
  • Upcoming events/meetings?
    • US China talks on 22-23 August 2018
    • US Midterm elections: 6 Nov 2018
    • Hard deadline on Iran sanctions: 4 Nov 2018
• Check status of economies
  • Oil demand?
    • As above, there seems to be a fear that demand will take a hit because of the trade war, but it actually hasn’t taken a hit yet. Barring a proper bear market, I don’t think demand will reduce significantly.
• Check other charts for movement
  • USD
    • The USD has dropped significant;y recently due to Trumps comments on the FED raising rates. ^
  • Gold
    • Gold has finally started to rise after a 2 month long losing streak. ^
• Technical analysis
  • TTM_LRC ranges
    • The price of oil have jump back up into the -1SD range. At least it shows that the TTM_LRC lines form a pseudo resistance line that can hold for now. ^
• Check Chart discrepancies
  • Quarterly expiry of futures and next futures chart
  • Gap between WTI and Brent

The Forecast

With so much uncertainty, I think I’ll make a iron condor style prediction to play it safe.

• I am 70% confident that the price of WTI oil will not be below $61 and not be above $74 on 19/10/2018