Crude Soft on Monday as Analyst Predicts Slide to $55/bbl

Geopolitical risk will reportedly influence crude trading for the remainder of this week. File Image / Pixabay

The seemingly symbiotic relationship between crude and Wall Street continued Monday, with the main indexes of the latter falling (due to worrries about a trade war) and causing West Texas Intermediate to drop 28 cents to $62.06 per barrel.

Brent climbed 8 cents to $66.29 per barrel after earlier falling to $65.39.

A Baker Hughes drilling report showing a four rig increase to the U.S. rig count is also said to have impacted Monday's trading, and Commerzbank predicted in a note, "At the current oil price level, drilling activity and thus output in the U.S. is likely to increase further."

However, Monday's slide was far from calamitous, and pundits pointed out that prices were supported to a degree - and will continue to be supported - by geopolitical tensions.

Olivier Jakob, analyst at Petromatrix, said, "This week there will be ... a pricing of some geopolitical risk with the crown prince going on a visit to the United States, which is likely to provide a lot of headlines against Iran and the (sanctions) deal," referring to Saudi Arabia crown prince Mohammed bin Salman and Iran's pact that has removed sanctions on that country in return for limits on its nuclear program.

As usual, there were conflicting views about the state of the crude market in the wake of Monday's trading: Phil Flynn, senior market analyst at Price Futures Group Inc., remarked, "We keep talking about all this shale oil production, but it's not really showing up that much in global inventories; they continue to be tight"

But Matt Stanley, a fuel broker with Freight Investor Services, stated in a note, "Let's face it, there is still too much oil."

So, where do crude prices go from here?

As far as Louise Yamada, managing director of Louise Yamada Technical Research Advisors, is concerned, there will soon be a pullback: she told CNBC's Futures Now, "Over the past couple of months, you have what's created a descending triangle with lower highs on the rallies, and $58 [per barrel] comes in as a support level for this little triangle; so, on a short-term basis if $58 is broken on the downside, you could see the price slip."

After stating that levels could fall to $55, Yamada conceded that "If it were to go further, then the next support would be close to the uptrend, around the 2016 uptrend around $53."

However, Yamada added that momentum indicators are negative, so odds favour a short-term downturn before going back into rally mode.

Yamada's remarks fall somewhat in line with the optimism expressed last week by Bank of America Merrill Lynch, which declared that despite the might of U.S. shale, market circumstances overall are healthy enough to allow for oil prices to move above where they currently are.