Yesterday, the U.S. Energy Information Administration’s weekly count indicated crude oil inventories dropped by 3.86 million barrels versus the previous week inventories which surged by 7.07 million barrels.
This gave an extra upward push for the commodity’s prices that kept a bullish momentum throughout the current week.
Restrain of Oil Production by OPEC plus group
We start our fundamental analysis, with news from the OPEC plus group that has been in an agreement since the start of 2019 to restrain Oil production and control supply from growing disorderly.
This week various reports from all over the world have made the case for an extension of this agreement by OPEC and its allies, something that was hinted from the group’s officials in previous months also.
Data from Oil analysts confirm OPEC’s exports fell to 23.65 million bpd in February from 24.08 million bpd in January.
In more detail, Venezuela’s exports slipped by 540,000 bpd after all the negative geopolitical difficulties it is currently facing, while Saudi Arabia’s exports also diminished by 140,000 bpd, but in this case voluntarily.
Iraq also followed the Saudis cutting oil exports on an average to 3.5 million barrels per day.
Export forecasts for March 2019 displayed that Venezuela is most probably to keep reducing its exports with a reduction of 250,000 bpd along with Saudi Arabia’s by 440,000 bpd and Iran’s by 540,000 bpd.
This could be the cartel’s strategic approach towards countering the US Oil production, which from analysts and Oil follower’s perspective, is out of control.
This does not mean they will be able to completely offset the effects from the nonstop US Oil production, yet they could be able to manipulate prices to their advantage at some points that could smooth the negative effect of overproduction.
Overproduction of Oil in the US
From the US viewpoint, excessive Oil production is something they strongly support and have plans to continue their current path of pumping glut even after various reports have surfaced that indicated fears of oversupply levels being reached.
For example, the U.S. Energy Information Administration (EIA) forecasted that world supply will exceed demand in 2019 by 440,000 barrels per day.
During this week’s CERAWeek 2019 event taking place in the US, Houston Texas it was noted that oversupply from the US side aims to cover for losses of supply from countries having a hard time providing glut to purchasers.
Specifically in the case of Venezuela and Iran of which both have been powerfully opposed by the US with its implied sanctions.
Overproduction of Oil in the US could be an intense action to remove these countries completely from Oil exporting.
Particularly, for Iran an urge was made from US president Donald Trump to release maximum pressure on Persia without disturbing Oil price volatility.
In our opinion the US has the infrastructure to achieve this and this is exactly what we are observing for the time being.
So the US plans to control Iran’s Oil activities could be related to the US uplifting Oil production and stepping in to serve as an Oil exporter itself.
Asia increasing Oil purchases
As a conclusion, according to another report by the International Energy Agency (IEA) in the following years Asia will increase its demand for gasoline and other Oil sub products like naphtha, due to a significant part of their population moving to the middle class sector and buying automobiles.
This fact potentially makes the United States the perfect supplier for the Asians, especially with its increased supply and cutting edge technological oil exploration techniques, which according to IEA will contribute to boost exports by 2.8 million bpd by 2024 to 13.7 million bpd.
Please note, Asia has already increased its Oil purchases of U.S. crude yet without the help of the largest Oil importer globally, China of which they remain in talks to find a solution to the much discussed issue, the Trade Wars.
Technical Outlook on Oil Market
If the bullish momentum crude Oil has enacted is continued, we could see the commodity clearly breaking above the (R1) 58.49 resistance level, aiming higher for the (R2) 60.30 resistance barrier with the (R3) 61.55 resistance hurdle being next.
If the commodity comes under selling interest we could see it drop towards (S1) 56.52 support level, and continue to trade even lower for the (S2) 54.62 support hurdle.
Even lower we could find the (S3) 53.93 support level.
Please note Crude Oil could also keep a sideways movement between the (R1) 58.49 resistance level and the (S1) 56.52 support level.