Last week was one for the oil bulls, with prices moving higher for four out of five trading days. Reports of an expected slowdown in supplies from OPEC and a more significant than expected drawdown on weekly U.S. oil inventories supported oil prices. Analysts expected an inventory drawdown of around 1.5 million barrels, but inventories declined by 5.8 million barrels instead. News of slowing supplies and higher demand drove prices up over 5% for the week.

Key Takeaways Oil insights from August 20 – 31, 2018.

Oil prices trading inside the range of $66 to $70 per barrel with potential to test the upward bound of $70.

Iran in the headlines with U.S. sanctions a concern and French oil major Total S.A. ending a multibillion-dollar gas project.

Iranian Sanctions More Important than Chinese Trade

For the time being, market concerns about looming sanctions on Iranian oil are taking precedence over strained ties in the U.S. and Chinese trading relationship. This week, traders will likely focus on factors that could see oil prices trade over $70 per barrel. In the tug-of-war for market attention between supply and demand, the supply side seems to be winning now.

For example, sanction-related supply concerns helped propel oil prices higher, despite news that China introduced a 25% tariff on $16 billion worth of U.S. energy products, including butane, propane, naphtha, jet fuel, and coal, among other items. Traders had worried that a deteriorating trade relationship between the U.S. and China could hurt global demand for oil and oil-related products, pushing prices lower. Trade concerns are now subordinated to supply worries.

Traders are more focused on the slowdown in purchases of Iranian oil ahead of the November 2018 U.S.-imposed sanction deadline. The investment bank Jefferies told clients that third-party reports indicate Iranian tanker loadings are already down by around 700,000 barrels per day (bpd) in the first half of August relative to July. The U.S. is hoping to halt all global purchases of Iranian-supplied crude after it completely implements sanctions.

In another blow to the Iranian regime, French oil major Total S.A. (TOT) confirmed last week that it would end a multibillion-dollar gas project in the country because it is unable to obtain a project-specific waiver from the U.S. authorities. Traders are worried that Iranian sanctions could severely undersupply the oil market as soon as 4Q18.

Oil Returns to Range-Bound Trade

Oil's strong performance last week propelled prices back inside the range of $66 to $70 per barrel where they have traded since mid-July. Oil is now positioned to retest the $70-per-barrel level, where it met with resistance earlier this month. A close above $70 would be a particularly bullish signal and would likely lead to the 21-day exponential moving average crossing above the 55-day exponential moving average. It could also allow the fast-moving line of the moving average convergence divergence (MACD) momentum indicator to move above the neutral zero line. Many traders would take that as a strong technical buy signal.

Other technical indicators are also bullish thanks to oil's strong recovery last week. For example, technical indicators on the daily price chart now show seven buys, two sells, and one neutral signal. Daily moving averages are more optimistic too, with all exponential moving averages – from five-day to 200-day – signaling a buy. The broader weekly price chart, however, remains cautious. Here, technical indicators remain bearish, with six sell, three neutral, and two buy signals.

The weekly price chart could turn neutral this week if price action continues upward. The weekly price chart has entered a technical bullish engulfing pattern. With this pattern, last week's candle opened lower than the previous week but closed higher as well. The upward price action completely engulfed the downward price movement from the week before. Traders believe this signifies that the downtrend has lost momentum and that the bulls may be gaining strength.

Traders will keenly focus on this week's price action. Oil consolidating gains above $70 per barrel would be a technically bullish signal and would lend support to those arguing that prices are poised to move higher in 2H18. If oil remains range bound, however, then this could be a sign that upward momentum is waning, and traders should expect more sideways movement for the time being.

Disclaimer: Gary Ashton is an oil and gas financial consultant who writes for Investopedia. The observations he makes are his own and are not intended as investment or trading advice. Price chart courtesy of StockCharts.com.