wti crude oil market outlook analysis

In the previous days, OPEC confirmed through its report, it had cut oil production sharply under a global supply deal, but at the same time made reference to circumstances that could affect its current course taking place to prevent excess supply this year.

The Oil group stated potential threats coming from weaker demand and higher rival output indirectly indicating the US production could affect supply levels in the next months.

Weaker demand could be followed by a slowdown in China’s economy as the Mainland is among top Oil importers globally and can potentially create inconsistencies in the Oil market.

We must note, the biggest drop in production was brought forward by leader producer Saudi Arabia, which amounted to 350,000 bpd, the report showed.

The group also added that it expects demand for its crude to decline to 30.59 million bpd, implying a reduction of approximately 240,000 bpd, compared to its last report.

Saudi Arabia and Russia chancing plans

Furthermore, Saudi Arabia and Russia have seemingly cancelled a plan they had in mind for prior years to form a group of their own.

The idea was publicized since 2017 when the two Oil giant producers agreed to cut production and help balance the market.

The decision to scrap the plan may have come after the latest U.S. anti-cartel legislation for the oil industry a report stated, but our opinion is that the plan may be formed secretly and not on paper as previously thought to be.

In any case the OPEC plus group oil supply, may be exceeding global market demand with the revised statistics indication.

U.S. estimated crude output to increase in 2019

Reports from the U.S. estimated crude output to increase by 1.45 million barrels per day (bpd) this year and 790,000 bpd more next year, totaling an output of 13.2 million bpd, according to the Energy Information Administration.

U.S. oil production this year is forecast to be at a record 12.41 million bpd, the EIA said.

The report cited as a reason the ongoing progress and development of the Permian Basin of Texas and New Mexico and to output in the Gulf of Mexico.

In our view, with the US uplifting its Oil activities and investing more money in producing and pumping more oil, we see a huge part of global demand been covered by them, instead of OPEC’s Oil.

If they can produce at lower prices, they will most probably be able to provide better deals to potential customers along with cheaper prices.

On the other hand, we see OPEC plus group taking some action against the US, as they did state in the past they could make further adjustments, hinting further cuts.

Unstable Venezuela’s Oil market

On another front, Venezuela’s Oil market does not seem to be in a stable situation at all, after the new U.S. sanctions came to effect on January the 28th.

According to Reuters, State-run oil company PDVSA is attempting to replace oil supply to the United States and Europe that were disrupted by payment restrictions, by selling to India, a huge oil consuming country.

The Latin American country is said to be aiming to increase its oil business with India as it already provides the Asian country with fuel, with the difference that the payment be made in cash.

Moreover, it was said Venezuela is also open to barter arrangements with India using oil as payment, though no specific information was given as to how such a system would work.

Market participants that are closely observing the Venezuelan matter, confirm that even though the country faces tremendous difficulties pushing oil to other markets along with the legal, reputational and financial risks related to counterparties, PDVSA has been able to load and export 1.15 million barrels per day (bpd) of crude and refined products even after the sanctions.

As a conclusion, we would like to note comments from IEA’s Fatih Birol that referred to the upcoming development of the US shale production, saying the US could be very responsive to Oil activities this year but also to keep in mind that a new under-construction oil pipeline system that could hold more capacity could be even more responsive to demand and production and so traditional Oil producers may need to adapt or look out in the future months.

WTI Crude Oil Market Outlook

Crude Oil moved higher this week after the news that OPEC confirmed cutting production.

If the bullish trend continues we may see the commodity breaking above 53.75 (R1) resistance level and aiming higher for the 54.43 (R2) with the 55.35 (R3) being next.

In the opposite scenario a bearish sentiment could sent the commodity below our 53.04(S1) support level and from their dropping lower for the 52.26 (S2) support barrier and even lower for the 51.67 (S3) support hurdle.

Please note today, at 15:30 (GMT) the EIA will be releasing its weekly figure and could create volatility for Oil prices.