Oil market: WTI’s price stabilises for now

WTI prices maintained largely a sideways movement since our last report and fundamentals surrounding the oil market related to the blocking of the Suez Canal, the intentions of the OPEC+ group and expectations for future demand in the oil market. In this report we will discuss the implications of OPEC’s decisions, while at the same time try to explore further the possibilities for the demand outlook of the oil market. Fundamentals are to be complimented with a technical analysis of WTI’s 4-hour chart at the end.

We make a start with the releases made in the past two weeks and its characteristic that active oil rigs in the US continued to increase, with their number increasing to 324 as per the Baker Hughes US oil rig count. At the same period a buildup of oil inventories in the US was underway yet at a diminishing rate according to the EIA crude oil inventories figure which even indicated a drawdown of 876 thousand barrels in the last week, while the API crude oil inventories figures shows a widening of the built up reaching 3.91 million barrels in the last week. Despite the mixed signals provided by the last two indicators, we tend see demand being on the rise given that the number of active oil rigs is rising, yet the surpassing of demand levels by production as reported by API, should not be underestimated. Overall a tightening of the US oil market could create some support for oil prices in the coming weeks.

On the other hand, the OPEC group has reportedly lowered the demand outlook forecast for the current year, by around three hundred thousand barrels per day. The decision to lower the outlook seems to be based on worries for the market’s recovery, given that renewed lockdown measures are employed which enhanced the organization’s cautiousness. The overall effect seemed to be inclined on the bearish side yet of low impact. It should be noted that the organization had decided to keep its production cuts unchanged in a recent meeting. Reports though state that OPEC oil output has risen in March, led by Iran and countering the oil production cuts of other members. Overall though additional production cuts by the Saudi’s still lowered the levels of output by the group. Analysts tend to expect that the group could roll over the production cuts into May, with Saudi Arabia keeping in place its additional voluntary cuts until June.

In the past days a report by the IEA wrote that Oil demand will return to 2019 levels by 2023. Despite this prediction, we must note that during the beginning of the current year, global oil demand was higher than expected due to colder weather and improved industrial activity in the US and elsewhere. In our view, as the economic recovery and vaccination processes continues to be rolled out, the demand for Oil could increase with more people being able to return to work or travel.

On the other hand, the global economy seems to be recovering and, in some regions, even faster than expected. Its characteristic that China’s manufacturing PMI for March outperformed market expectations. Given also that China has set a goal of economic growth at 6%, while some analysts cite it closer to 8% and is a large oil user, demand may get an additional boost. At the same time the US economy also tends to recover at a faster than expected pace, which may also imply a higher demand for the oil market. It’s characteristic that EIA in its weekly petroleum status report stated that demand increased by 9% on a week by week basis and overall the US demand averaged 20.3 million b/d last week, up from the 2021 weekly average of 19.4 million b/d. Overall, demand seems to be picking up for the oil market and could create some bullish tendencies fundamentally for black gold’s prices yet that has still to be confirmed in the coming weeks.

التحليل الفني

WTI 4H chart

Support: 59.00 (S1), 57.20 (S2), 55.10 (S3)

Resistance: 61.15 (R1), 63.00 (R2), 65.40 (R3)

WTI maintained a sideways movement since our last report on the 18th of March, with the main body of the price action being between the 61.15 (R1) resistance line and the 59.00 (S1) support line, despite some outbreaks to the downside. We tend to maintain a bias for a sideways motion and for it to change we would require a clear breaking of either of the prementioned boundaries. It’s characteristic that the RSI indicator below our 4-hour chart continues to run along the reading of 50, with slight divergences to either side, implying a rather indecisive market. Should the bulls take over, we may see WTI prices, breaking the upper boundary of the prior sideways movement, which is the 61.15 (R1) resistance line and aim for the 63.00 (R2) level which capped the commodity’s prices on the 25th of February. Even higher we note the 65.40 (R3) resistance hurdle. Should the bears take over, we may see WTI’s price-action breaking the 59.00 (S1) support line and aim for the 57.20 (S2) support level, which marks the lowest point oil prices have reached in the past two weeks, specifically on the 24th of March. In an intense selling interest, we may see oil prices heading for the 55.10 (S3) support barrier

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