wti crude oil market outlook analysis

Will OPEC and its allies prolong production cuts?

Crude Oil displayed a sideways motion in the past days after various mixed data overshadowed the commodity’s activity.

First, signs that OPEC and its allies could prolong production cuts further than June when the groups meeting is forecasted to take place and second, the late API weekly reading providing a surplus of 2.4M barrels.

Many Oil market followers are in favor of the opinion that any extension of supply curbs by the Organization of Petroleum Exporting Countries and its allies maybe the reason for an oil rally to be enacted after the past month was somewhat weakening for the precious commodity’s prices.

Saudi Arabia is for long-term winning

In a meeting taking place in the previous weekend Oil ministers from Saudi Arabia and other OPEC producers said that they were favoring the extension of the production cuts into the second half of 2019.

The Saudis prefer to keep their tight production management and watch inventories dropping gradually but keep supply in normal levels.

Detailed information from various reports indicates Saudi Arabia’s crude exports during the first quarter dropped by less than 1% compared with the same period in 2018 while export earnings fell about 7% compared to the previous year.

Do these percentages raise the question of what are the expectations of the OPEC plus group for Oil prices?

Also, what could be a satisfying price level for them to reach in order to change the balance of supply to the market?

From a maximum profit perspective the Saudis can achieve much better results yet they may be thinking of a long run and steady strategy rather than a short winning streak.

On the other hand the Russians still seem to be skeptical whether this is the right way to go with production levels.

Russian Energy Minister Alexander Novak implied they may be willing to increase production.

Yet he added Russia would still comply with any agreed output limit until the end of 2019.

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Morgan Stanley’s expectation

On another front, in an interesting report, Morgan Stanley released its expectations for the second half of the year regarding Oil price fluctuations and the drivers behind the prices.

According to MS Brent crude prices could be lifted to the $75-$80 per barrel range in the second half of 2019, due to a significant tightness in the oil market.

It based its view on the assumption that the market is expected to be 1.1 million bpd undersupplied by the third quarter, as at the moment there is a 0.6 million barrels per day (bpd) deficit for the second quarter.

US Sino Trade War affects Oil market

On a separate matter, both the United States and Chinas involvement in an increasingly bitter trade dispute has now showed its effects in the Oil market.

According to people involved in the Oil industry, the trade war has resulted in diminishing shipments of U.S. crude to China, and Chinese buyers are not interested to sign agreements with U.S. crude exporters, for the time being.

Some evidence in provided through a statistic performed by the U.S. Energy Information Administration.

In the first half of 2018, China imported an average of 377,000 bpd of US crude.

In the next six months the Chinese imports had dropped to 41,600 bpd, a considerably much lower figure.

What to expect from Oil market?

As a conclusion, some matters that are directly and indirectly affecting the Oil market are still looming and could reverse the current course of the commodity’s prices in a second.

On one side we have a questionable global economic growth which has the potential of hurting Oil demand in the later months.

Then again growing tensions in the Middle East are a serious threat to the stability of global crude oil markets.

However, Oil traders are counting more on OPEC’s upcoming meeting to make decisions that could last.

Oil Market Technical Outlook

A strong resistance level has been formed at 63.10 (R1) in the previous sessions.

Even though WTI has breached the level, it was not able to hold above it.

However in a bullish run we may see WTI move above the 63.10 (R1) resistance level and head for the 64.70 (R2) resistance level.

Even higher we could see the 66.60 (R3) resistance level could be found even higher.

In the down side, if the commodity is sold we could see it move down towards the 61.55 (S1) support level which has been tested various times in late April and beginning of May.

Below that level we could see WTI make a move to the 60.30 (S2) support line and move even lower for the 58.50 (S3) support barrier.

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