Oil Price Fundamental Daily Forecast – Need Attack on Supply to Sustain Upside Momentum

U.S. West Texas Intermediate and international benchmark Brent crude oil futures hit multi-month highs on Friday as traders reacted to an escalation in Middle East tensions. The catalyst behind the moves is the news that an Iranian military commander was killed in a Baghdad airstrike.

The Pentagon later confirmed that he was killed by a U.S. drone strike. Crude oil prices jumped on speculation that further military action is likely, raising the possibility that supply will be affected.

At 12:55 GMT, February WTI crude oil is trading $63.43, up $2.25 or +3.68% and March Brent crude oil is at $68.79, up $2.54 or +3.83%. Both futures contracts hit their highest levels since April 25, 2019.

Iraqi TV:  Iranian Military Commander General Soleimani Killed in Baghdad Strike

Early Friday, an official with an Iran-backed paramilitary force said that seven people were killed by a missile fired at Baghdad International Airport, blaming the United States. It was not immediately clear who fired the missile or rockets or who was targeted. There was no immediate comment from the U.S.

Their deaths are a potential turning point in the Middle East and are expected to draw severe retaliation from Iran and the forces it backs in the Middle East against Israel and American interests.

U.S. Pentagon Confirms the Attack

Iran’s top commander General Qasem Soleimani has been killed in a U.S. drone strike in Baghdad, the Pentagon confirmed on Thursday night following reports of his death on Iranian state television and Iraqi media.

In a statement, the Department of Defense said, “General Soleimani was actively developing plans to attack American diplomats and service members in Iraq and throughout the region.” Furthermore, “This strike was aimed at deterring future Iranian attack plans. The United States will continue to take all necessary action to protect our people and our interests wherever they are around the world.”

Iran Vows to Retaliate Over the Killing of Its Top Military Commander

Iran has vowed to retaliate over the assassination of the country’s top military commander Major-General Qasem Soleimani.

Iranian Foreign Minister Mohammad Javad Zarif warned Friday that the targeted killing of Soleimani was “extremely dangerous & a foolish escalation.”

“The U.S. bears responsibility for all consequences of its rogue adventurism,” Zarif said on Twitter.

Weekly Inventories Expectations

Official weekly inventories data from the Energy Information Administration (EIA) is due to be released on Friday at 16:00 GMT. Traders are looking for a draw of 3.1 million barrels.

Late Tuesday, the American Petroleum Institute (API) reported a drop in U.S. crude stocks by 7.8 million barrels in the week ended December 27, compared with analysts’ expectations for a decrease of 3.2 million barrels.

Daily Forecast

Look for heightened volatility over the near-term as traders prepare for retaliation from Iran. The rally could stall if the retaliation doesn’t affect the oil supply. In order to trigger another surge to the upside, the oil supply is going to have to be threatened.

Remember what happened in the market after the attacks on Saudi production facilities in September. The market initially spiked higher, but prices began to fall after the damage was assessed. Basically, “no oil spilled, no significant rally”.