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Although the buying appears to be weakening this week, buyers are still present. However, since the extremely bullish conditions have changed a little due to the rise in U.S. inventories and the possibility of increased production, buyers are being a little more selective about their entry levels. In other words, they appear to be looking for value as opposed to just chasing prices higher.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching higher early Friday after a volatile trading session on Thursday. The selling was strong enough to turn the minor trend down on the daily U.S. crude chart, leading to a shift in momentum. The Brent futures contract bent a little but the minor trend remained intact.

Pressuring the markets on Thursday were concerns over rising U.S. inventories and the news that Saudi Arabia and Russia had agreed to raise output in an effort to offset the expected shortfall caused by the impact of the U.S. sanctions on Iranian exports.

Forecast

Although the buying appears to be weakening this week, buyers are still present. However, since the extremely bullish conditions have changed a little due to the rise in U.S. inventories and the possibility of increased production, buyers are being a little more selective about their entry levels. In other words, they appear to be looking for value as opposed to just chasing prices higher.

The issue over compliance is in the news again. This is potentially supportive for prices. The U.S. sanctions will start targeting Iran’s crude exports from November 4, and the Trump administration is putting pressure on governments and companies globally to fall in line.

According to reports, it now appears that only China and Turkey may we willing to risk U.S. retaliation by transacting with Iran. This new development indicates nearly full compliance with Washington’s plan.

Also supporting prices is strong hedge and commodity fund buying. Government reports show that financial traders have accumulated bullish long positions betting on a further rise in prices amounting to almost 1.2 billion barrels of oil.

On the other side of the coin, the number of short positions in the six most important petroleum futures and options contracts has fallen to the lowest level since before 2013, creating a near-record imbalance between bullish and bearish positions in financial crude markets.

The demand side is raising a caution flag. This could lead to further erosion of near-term support while increasing the odds of a potential break into a value zone. High oil prices and a strong U.S. Dollar are hurting demand from emerging market countries for dollar-denominated crude oil.

I still have a bullish bias, but would like to see a short-term pullback to alleviate some of the upside pressure. We could get that pullback if the dollar spikes higher following a bullish non-farm payrolls report later today.