Market Analysis

Oil surges on expectations of OPEC production cuts, trade war truce

China and US have been clinched in a trade war for much of the past year, wrecking the stream of hundreds of billions of dollars’ worth of goods and raising concerns of slowing growth. Trade talks this week in Beijing are the first face-to-face discussions amid signs of progress on issues including purchases of US farm and energy commodities and increased access to China’s markets.

Despite the demand-side fears, oil has received some support as supply cuts announced by the global coalition of producers known as OPEC and non-OPEC members. OPEC, Russia and other non-members agreed in December to reduce supply by 1.2 million barrels per day (bpd) in 2019.

The latest report showed that OPEC oil supply fell in December 2018 by 460,000 barrels per day (bpd) to 32.68 million bpd, mainly driven by top exporter Saudi Arabia.

The current bullish strength on crude oil has been boost by rumours that Saudi Arabia is planning to cut crude exports to around 7.1 million barrels per day (bpd) by the end of January 2019.

However, the focus now will be on whether producers can deliver further curbs in January to implement the deal fully.

American Petroleum Institute (API) reported yesterday its weekly statistical bulletin (WSB), which revealed a decrease to -6.270 million in crude oil stocks compared to last week number of -4.50 million barrels. This harsh drop may suggest a rise in demand, which might drive the oil price to push upward.

In the meantime, markets remain cautious on the US Energy Information Administration (EIA) report on crude inventories due today, following last week’s number of 0.007 million barrels. Today, we will have the release of EIA latest survey the report and is expected to show a drop in crude oil stocks with estimates at -2.800 million barrels. If the decline in crude inventories is less than expected, it implies weaker demand and is negative for crude prices.

The API data is often seen as a prelude to the EIA data, as it is released the evening before the EIA report. There is definitely a relationship between the two data sets: 80% of the time the data is directionally aligned.

Meanwhile, according to the last data from energy Services Company Baker Hughes released on January 4th, the average number of US oil-drilling rigs fell to 1.075 comparing to the 1.083 released on December 28th. This rig count is an important business indicator for the oil drilling industry and acts as a leading indicator of demand for oil products.

Since the beginning of 2019 until last Tuesday close, the crude oil remains positive with more than 8.5% and since the start of January gained almost 8.75%. In addition, the weekly outlook for the commodity remains positive with a gain in excess of 3.0% and on the daily basis, closed well in the green with a 2.16% gain. However, crude oil remains in a bearish phase since late-October 2018.

On yesterday session, crude oil rose with a narrow range closing near the high of the day, although, managed to close within Monday range, which suggests being slightly on the bullish side of neutral.

The stochastic is showing strong bullish momentum and is above the 50 midline.

Crude oil ended 2018 on a negative note as it closed at 45.82 but found enough buying pressure near 42.04 (2017 low) to kick-start an upward correction. The commodity carried on into 2019 the growing momentum managing to trade above the 10-day moving average, which now should act as dynamic support. However, the black gold upward movement may be capped by a critical daily resistance zone ranging from 49.46 up to 50.90 and the upcoming psychologic price level of 50 dollars a barrel.

LCrude is a CFD written over Light Crude futures.


LCrude Feb ’19 Daily Candlestick Chart

LCrude Feb ’19 Daily Candlestick Chart 


Market Events to Watch: 


January 09 at 18:00 GMT (13:00 ET): The Baker Hughes will release weekly data on the US oil rig count. An increase in the oil rig count is seen as having a potential negative impact on crude oil price because it is perceived as a likely increase in crude oil inventories if demand does not pick up.


Written by Hugo O’Neill, External Analyst


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