IGI Securities Limited – Commodity News

Karachi, January 08, 2019 (PPI-OT): Crude Oil

Technical

The WTI Crude Oil market rallied a bit during the trading session yesterday to reach towards the $50 level and of course the downtrend line that it has been paying attention to for some time. If it can break above the $50 level, crude oil could take off and reach towards the 50 day EMA, perhaps even the $55 level after that. Ultimately, if it break down below the $48 level, it could then go down from there to reach towards the $45 level. At this point, there is a long term negativity this market. One major factor could be a depreciating US dollar, which makes crude more expensive. Brent markets have rallied a bit during the trading session as well, and now it looks as if the $60 level above is resistance. If it can break above the $60 level, it will then test the 50 day EMA. If it can break above that, then it could go higher than that, reaching towards the $65 level, perhaps the $70 level.

Highlights

U.S crude oil inventories were forecast to have declined last week

Crude stocks fell 3.3 million barrels in the week to Jan. 4

Momentum is coming back into the market from very depressed price levels

When the stock markets are strong, oil usually follows suit

Crude prices had plummeted in the fourth quarter by roughly 40% from four-year highs reached at the start of October

Fundamentals

Oil prices edged higher yesterday, rebounding further from 1-1/2-year lows reached in December, on support from OPEC production cuts and steadying equities markets.

Brent crude futures rose 27 cents to settle at $57.33 a barrel, a 0.47 percent gain. U.S West Texas Intermediate crude futures rose 56 cents to settle at $48.52 a barrel, a 1.17 percent gain. Oil futures have gained more than 7 percent since last Monday.

Prices drew support from a Wall Street Journal report saying that Saudi Arabia is planning to cut crude exports to around 7.1 million barrels per day by the end of January.

OPEC and its allies are trying to rein in a surge in global supply, driven mostly by the United States, where production surpassed 11 million bpd in 2018. Record high crude oil production has pushed up U.S inventories.

OPEC oil supply fell in December by 460,000 barrels per day to 32.68 million bpd, led by cuts from top exporter Saudi Arabia. The oil prices are drawing support from an agreed supply cut by OPEC.

It continue to view the OPEC production cuts that became official last week as a legitimate bullish consideration and it still look for the reduction to translate to a reduced U.S crude surplus that could potentially be erased in some 8-9 weeks.

U.S crude inventories at Cushing, Oklahoma, the delivery point for U.S crude futures, fell by 565,000 barrels from last Tuesday to Friday. OPEC oil supply fell in December by 460,000 barrels per day, to 32.68 million bpd.