Oil prices boosted by Saudi cuts and trade talks optimism
Oil prices are continuing to advance this week after Saudi Arabia announced that it would be able to reduce oil production by over half a million barrels more than previously anticipated. The OPEC-led production cuts have helped West Texas Intermediate and Brent Crude oil move towards the best levels of the month so far.
Further bullish news that President Donald Trump may extend the March 1st trade truce deadline has also helped to support the bid-tone in oil prices. Any extension of the truce deadline would allow effectively allow Washington and Beijing negotiators more time hammer out a potential trade deal between the world’s two largest economies.
Saudi Arabia said that it would reduce production to around 9.8 million barrels, which is much more than the world’s largest oil exporter had originally agreed. The move to reduce production is part of a joint effort from leading OPEC exporters, who hope that by creating a glut of oil on the international market, it will help to eventually drive up prices.
The Kingdom of Saudi hopes that high oil prices will help to increase funds for the nations economic transformation plan, which includes business transformation and the world’s largest sovereign wealth fund, and crucially, heavy new investment in its domestic energy sector. Saudi Arabia is also seeking to change its domestic economy and move away from oil dependence, in line with other Gulf states such as the United Arab Emirates.
Oil analysts are speculating that the recent rebound in oil prices will only be sustainable in the long-term if a strong trade deal between the United States and China can be reached. The global economy is likely to weaken further if a trade deal cannot be agreed, and it would ultimately put downward pressure on oil prices, from weakening consumer demand and an overall stagnation in oil demand.
LCRUDEMarch19 Daily Mountain Chart | Source: ActivTrader Platform
Aside from the ongoing Sino-U.S trade tensions, the ongoing crisis in Venezuela is creating problems for oil analyst, who are finding it hard to predict oil prices during the first quarter. Further U.S sanctions or military action in Venezuela are all key factors analysts are weighing-up, which could create considerable volatility in oil prices and increase geopolitical tensions across the region.
It is crucial for Crude oil prices to start to break above the $55.00 level, in order for bulls to eventually force a new higher trading range for oil between the $55.00 and $60.00 levels. Sustained failure to break into a new bullish will likely see oil prices easing back towards the $52.00 to $54.08 range.
Written by Nathan Batchelor, External Analyst
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