Oil Price Fundamental Daily Forecast – Nervous Longs Exit as Iran Nuclear Deal Worries Linger

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Tuesday after a promising start to the week yesterday. Longs liquidated and moved to the sidelines earlier in the session, influenced by the latest progress in talks to revive the 2015 Iran nuclear accord, which would eventually allow Tehran to boost exports in a tight market.

Sellers are also being influenced by worries over China’s economy after a crude oil imports report showed a drop.

Crude oil does have a chance to turnaround late in the session with preliminary estimates calling for a draw in this week’s private and government inventories reports.

Still, traders can’t help but be concerned about volatility the next several days with a key government inflation report coming out on Wednesday, following Friday’s surprisingly strong U.S. labor market report.

Technically speaking, short-selling bears are being thwarted by bullish value-seeking traders defending the major support zone at $89.54 to $82.80.

At 10:17 GMT, September WTI crude oil futures are trading $90.59, down $0.17 or -0.19% and December Brent crude oil is at $93.65, down $0.25 or -0.27%. On Monday, the United States Oil Fund ETF (USO) settled at $73.54, up $2.00 or +2.80%.

Chance of Iran Nuclear Deal Supply Boost Caps Gains

Long traders shed positions early in the session on Monday after Reuters reported the European Union said it put forward a “final” text to revive the 2015 Iran nuclear deal as four days of indirect talks between U.S. and Iranian officials wrapped up in Vienna.

“What can be negotiated has been negotiated, but it’s now in a final text. However, behind every technical issue and every paragraph lies a political decision that needs to be taken in the capitals,” EU foreign policy chief Josep Borrell tweeted.

“If these answers are positive, then we can sign this deal,” he added as EU, Iranian and U.S. prepared to leave Vienna.

An Iran nuclear deal will increase supply. This will help a little to alleviate the tight supply situation, but the events could put more pressure on a market on the brink of a demand crisis.

Daily Forecast

Gains could be limited the rest of the session if traders grow confident Iran will agree to revive the nuclear deal. But if there is no agreement then look for crude oil to recapture today’s earlier losses and move higher.

Late in the session at 20:30 GMT, we could see some volatility after the release of the American Petroleum Institute’s (API) weekly inventories report. Traders are looking for a small 400,000-barrel drop in crude inventories.

Nonetheless, traders are bracing for volatility ahead of the report due to bad misses in both directions the last two weeks.

It is possible that the trade becomes subdued throughout the session due to the potential impact of Wednesday’s U.S. consumer inflation report. Federal Reserve rate hikes have had a negative influence on prices since March. A strong report will mean the Fed is going to have to super-size the next rate hike in September. This could weigh on crude oil prices.