Politics in the Middle East could cause a price spike"
In the aftermath of OPEC's extension of their production cut on May 25, the Middle East underwent a dramatic political change. In early June, Saudi Arabia and many of their allies cut off diplomatic relations with Qatar and initiated a land, sea, and air blockade of the tiny Persian Gulf nation. The Saudis claim that Qatar's relationship with Iran is dangerous for the region as is their financial support for terrorist groups in the area. The U.S. is the monkey in the middle of the current diplomatic crisis as central command for military exercises in the Middle East is in Qatar. While the secretary of state has appealed to the Saudis to ease the blockade and start talks with Qatar, President Trump has expressed support for the Saudis. At the same time, Russia's close relationship with Iran puts their interest on the opposing side when it comes to Saudi Arabia. The blockade has increased the temperature in an already volatile area of the world. This week, the U.S. shot down a Syrian military plane, and an Iranian drone and Russian military aircraft have repeatedly buzzed U.S. warships. Any outbreak of violence in the Middle East could cause the price of oil to spike higher as production and refining facilities, as well as logistical routes, will likely become targets for military action. Crude oil has been falling like a stone since May 25, and on June 20 it fell through critical support and is trading at the lowest price of 2017. However, there are many signals that the energy commodity will find a bottom soon. The lows came on a day when July futures were rolling to August, and it is likely that any speculative longs have exited positions. Crack spreads have turned higher over recent sessions, and the increase in contango is a sign that shale producers have stopped hedging and some may even be buying back short positions. Analyst sentiment has turned overwhelmingly bearish about the prospects for the energy commodity. All of these issues add up to a case for a bottom in crude oil around the current price since the daily chart exhibits a deeply oversold condition at this juncture.
The most bullish case for crude oil is the political situation in the Middle East that could cause violence to flare in the region. The OPEC members are at each other's throats these days, and that could lead to a temporary increase in output as they cheat and ignore their quotas. However, the political problems in the region and the ongoing proxy war between Saudi Arabia and Iran is likely to get a lot hotter over coming weeks, and the region could be on the verge of unprecedented violence over the blockade of Qatar. Increasing tension in the Middle East is not only bullish for the price of crude oil; but it could send the price from the new low in 2017 we saw on June 20 to a new high for the year in very short order if diplomatic tensions turn to military action.
I believe that the risk in crude oil has now shifted to the upside and that the energy commodity will head back to the $50 per barrel level sooner rather than later. In the low $40s, crude oil is now on sale, and the bargain price is not likely to last for long."
https://seekingalpha.com/article/4082841-crude-oil-sale-cracks-contango-signaling-another-low-crude