With just 3 weeks in 2019, the Oil market is making comparisons to 2018, and especially factors that formed last year’s Oil pricing.
Of course, everyone is interested in production levels increasing or decreasing, when at the moment the OPEC plus group is looking to cut supply for re-balancing purposes.
U.S. Shale Oil
On the other hand, U.S. Shale Oil output is expected to increase by nearly 63K (bpd) in February to a record 8.2 million bpd, according to the U.S. Energy Information Administration latest update.
It was also said that US shale oil production could continue to surge in the next year and even further, but on a slower pace, compared to 2018.
US Shale oil producers had uplifted their activities in the previous year, intensifying Oil exploration, which eventually landed the US in the number one spot, as an Oil producing country, leaving behind competition from Saudi Arabia and Russia.
However, if the slowdown is confirmed as forecasted, the effect on prices and demand could require a new method to maintain a balance in the Oil industry.
We saw a dramatic fall in oil prices in the fourth quarter of 2018, coming from shale production which outworked OPEC’s intentions to keep excess supply in check.
Middle East and Saudi Arabia
On another front, news coming from the Middle East and more specifically Iran, a new Oil well has been discovered in an area not used before for Oil production.
The area is located in the southwestern Abadan region and the Oil found was said to be light and sweet.
The fact that Iran is still taking action in identifying new sources of Oil, states that the country is not planning to be out of business in the near future and quite opposing, Iran has major plans to expand its production and sales, according to President Hassan Rouhani’s latest comments.
Continuing with Saudi Arabia, Aramco is looking to make its way even deeper in the Oil industry, this time making attempts to purchase Oil and Gas firms in the US.
According to Aramco’s CEO, who participated in the World Economic Forum in Davos, Switzerland, they are comfortable with spending billions of US Dollars, as they have plans to become a leading force in the Oil and Gas industry.
From our research on Aramco we have come to confirm, they are very serious on their developments in the energy industry and have huge potential to be a global supplier in the next years.
Aramco is in talks with major banks like Morgan Stanley and JP Morgan to fulfill its plans on acquisitions, displaying further its financial power.
Movements from Russia and China
Other important news from Davos, were some comments made by Russian officials, precisely stating they would like to avoid any war with the US on oil prices.
According to the report, Russia would rather maintain its pact with OPEC to cut production and influence prices to their advantage, attempting to book as much profits as possible.
Of course there is a price to pay for not competing and so the larger oil market cap will continue to belong to the US, as they have found cheaper ways to extract Oil and see the market from a different perspective.
Moreover, comments from IEA’s director, Fatih Birol, on Bloomberg, stating he remained optimistic that Oil demand would remain high for the coming year, but also confirming the industry faces difficulties from a potential global slowdown and especially China’s situation, sparking further interest to the market.
China is considered the biggest Oil importer worldwide and can affect the Oil industry deeply.
He also made a small reference to US shale oil producers, saying that with the way they are currently operating, they could force a major change in the Oil industry, as they are way ahead of their competition.
To close with, yesterday, investors of important US oil companies also participating in Davos said they doubt if investment in the industry will persist at the same levels.
The profits made from previous activities could be withdrawn by request of payout, without reinvestment for further Shale Oil operations taking place.
Things may not be as smooth as they seem for US shale Oil firms after all.
In the previous days, the commodity has been in a bearish momentum and in its downward trend it has broken both the 53.75 (R2) support level and the 53.04 (R1) support barrier, now turned to resistances.
If the bearish movement continues we may see Crude Oil heading below the 52.26 (S1) support level and aiming for the 51.55(S2) Support barrier.
Even lower could be the 50.75 (S3) support area.
In the opposite direction, a bullish scenario could mean climbing above the 53.04 (R1) resistance level and even higher for the 53.75 (R2) resistance barrier with the 54.43 (R3) resistance hurdle being next.
However, since yesterday the black gold has remained in a sideways movement between the 53.04 (R1) and the 52.26 (S1) support barrier.