Comments made by the Saudi Arabian energy minister in the previous days, may have had some positive influence on Oil prices, as hints for the actions to be taken in later months were included.
First of all it was said that they are confident that OPEC’s output cutting would help stabilize the Oil market, and that further action could be possible.
Adding to that, the Kingdoms energy minister said Saudi production cuts have been confirmed at 10.20 million barrels per day dropping even lower than the 10.31 million barrels per day, initially forecasted.
The cutting may keep up in February, especially regarding exports, aiming to reduce exports to 7.1 million barrels per day, down from 7.2 million bpd in January, as some improvement has already been confirmed.
On other news from the Kingdom, Oil giant Aramco will issue bonds during the second quarter of 2019.
The bonds are likely to be denominated in U.S. dollars as the currency may prove to be more attractive for potential investors.
Regarding the valuation of the firm, a point of which a lot has been written on through media reports, the Saudi energy minister stated it would depend on the market and that the firm’s petroleum reserves could be one of the bases for establishing its value, emphasizing in our opinion Aramco’s collection of companies and assets, under management.
More interesting, is an article by Reuters that stated that after an external auditing undertaken on Aramco, it was found that the cost of production per barrel for the Oil giant is $4 and that 54 major oil reservoirs are active under Aramco.
Moving forward, Morgan Stanley has reduced its 2019 oil price forecasts by more than 10 percent.
According to MS new forecast benchmark Brent crude prices could average $61 a barrel this year, down from a previous estimate of $69 a barrel, and U.S. West Texas Intermediate (WTI) to average around $54 per barrel, against a prior forecast of $60.
This forecast was made on assumptions of oversupply, which in our opinion is not something the market should take for granted.
OPEC plus group actions in the first half of 2018, had significant impact on Oil prices which averaged at $71.69 and $64.90 respectively for Brent and Crude.
Also note that for oil prices to lower, the group required the urge of the president of the United States, to ease its approach.
OPEC plus group may be looking to be the main player of the Oil game in 2019, as it was noted above that they could take further action if they are not satisfied.
On the contrary, in the US, statistical data confirms the Oil industry is growing with shale producers pumping aggressively.
Intense activities in the shale industry has made America the world’s top producer of crude oil.
In our opinion, US shale Oil activities could increase further during 2019, due to technology advancement and increasing investment.
OPEC officials in the previous months have welcomed America’s booming Shale Oil industry accomplishments, stating that they are learning from the process themselves.
However, the advancement of U.S. production acts like pure competition to the Organization of the Petroleum Exporting Countries and its efforts to cut supply and eventually increase prices.
The competition may persist throughout 2019, as the opposing producers do not seem willing to change tactics.
As a conclusion, we would like to further investigate comments made by the United Arab Emirates energy minister stating concerns about China-U.S. trade tensions.
From our point of view and until now, we have not seen any significant influence of the matter on Oil prices. Also, we believe that the outcome of the US Sino negotiations could result in an agreement as it was confirmed the talks are in favor of a solution.
On the other hand, a global slowdown boosted by various central banks around the world may have the effect of decreasing demand but again on a controlled level.
If economies are expected to reduce their activities on production, spending and investment, then Oil demand will also have some sort of impact and could keep the industry in check, with more adjustments to be made besides cutting or increasing production.
We may see Oil producers offering bargain deals in order to maintain their budgets and reach their targets.
Looking at the trading activity performed during 2019, it is obvious a bullish trend has been formed, in the first 10 days.
In case the trend continues, we may see the black golds move towards the 53.11 (R1) resistance level and even breach it, aiming for the 54.47 (R2) resistance barrier.
On the contrary, if a bearish sentiment overtakes the commodity, we may see it drop for the 51.58 (S1) support level.
A drop below that level could lead the way to our 50.00 (S2) support barrier.
In our opinion for the commodity to jump above or lower significantly, a serious event must take place.
We believe the direction of the commodities price, will be formed gradually.