US policy measure fortifies crude price but demand supply equation hurting intermediary WTI bull sentiments

With last week's crude inventory to miss forecasts, last week's $51 per barrel (WTI reached its highest price in nearly three months) has been unable to hold these gains. Profit-taking ahead of the long weekend - it is Columbus Day in the US today - caused gains to melt away in the later course of trading. Nonetheless, both oil types were up 9% by the end of the week of trading, which marks their highest weekly gain since the end of August. The increase in the WTI price early last week was driven by speculation to a major extent.

According to the CFTC's statistics, net long positions held by money managers climbed by 23,000 to 173,500 contracts in the week to 6 October, which is their steepest rise since April and their highest level in three months.

But for now, the underlying reasoning being supply glut for oil prices are broadly unchanged from last week as market participants awaited three key decisions from different branches of the US government.

While WTI prices reacted somewhat positively immediately following the Fed decision to maintain rates, they remained range-bound over the rest of the day.

Scrutiny of the decision to hold off on raising rates based on concerns over Emerging Markets economic growth weakness is far from supportive to our views on demand growth for 2016, and prices continued to tumble in early trading on Friday, however, shown a slight recovery today.

Closer to oil markets were the decisions by the U.S. Congress on crude export ban. Separately, the U.S. House of Representatives Energy and Commerce Committee approved a bill to abolish the U.S. crude oil export ban. However, there are many steps before which it can become a law and its further approvals are uncertain.

With the end of 60-day review period by the U.S. congress, the nuclear deal between Iran and P5+1 will go ahead in line with our expectations. As we have previously noted, however, we expect Iranian production to increase next year following the removal of the financial sanctions.

We expect that financial sanctions on Iran would be lifted in early 2016, resulting in higher Iranian crude production. This week's EIA weekly inventory report indicated a draw in US crude inventories as imports reduced significantly and another week of a big draw in cushing crude stocks. The forecast for tommorrow's inventory is at 2.2M and actual figures would determine the next stage for previous week's bull sentiments.