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IGI Securities Limited – Commodity News

Karachi, January 12, 2018 (PPI-OT): Crude Oil

Technical

Crude oil prices climbed to a fresh 3-year high following comments from OPEC that their current production deal could extend beyond 2018. Demand continues to rise as economic growth is beginning to accelerate higher. While inventories were mixed according to the latest report from the Department of Energy, production declined, while is allow prices to continue to hit higher levels. Support is seen near former resistance at 62.51. Additional resistance is seen near the 10-day moving average at 61.83. Momentum is positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to higher prices. The RSI is also showing that momentum is accelerating. The only caveat is that the RSI is printing a reading of 78 which is above the overbought trigger level of 70 and could foreshadow a correction.

Highlights

Oil futures failed to hold the gains, selling off as the close of trading approached

Analysts warning that the market might have little room left to run

U.S crude finished the session up 23 cents at $63.80, after breaking through $64 a barrel for the first time since December 2014

Oil prices have been supported by stronger-than-expected demand

A rally that began in June accelerated in December, with prices rising about 15 percent over roughly the last month

Fundamentals

Oil prices today slipped away from December-2014 highs reached the previous day. Although analysts and traders have been warning of the risks of a downward price correction since the start of the year, they point out that overall market conditions remain strong, largely due to ongoing production cuts led by the OPEC and Russia.

U.S West Texas Intermediate (WTI) crude futures were at $63.34 a barrel, down 46 cents, or 0.7 percent, from their last settlement. WTI the day before rose to its strongest since late 2014 at $64.77.

Traders said relatively weak China December oil data had weighed on prices. China’s crude oil imports in December eased to 33.7 million tonnes, or 7.97 million barrels per day, versus 37.04 million tonnes in November, customs data showed today.

Meanwhile, its December oil products exports hit a record 6.17 million tonnes, as refiners churn out more fuel than even thirsty China can absorb. This has contributed to a fall in Singapore refinery profit margins to below $6 per barrel this month, their lowest seasonal level in five years.

As a result, some refiners have already scaled back their output, reducing demand for feedstock crude. An expected rise in U.S crude oil production, currently at 9.5 million bpd, to above 10 million bpd soon has also weighed on prices.

Despite the lower prices today, many analysts expect crude markets to remain firm this year, especially due to the OPEC-led production cuts. OPEC has acted successfully to reduce the inventory overhang and demand growth remains robust in the short term. The production cuts started in January last year and are set to last through 2018. U.S. commercial oil inventories fell almost 5 million barrels in the week to Jan. 5, to 419.5 million barrels.

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