U.S. West Texas Intermediate and international-benchmark Brent crude oil futures posted a two-sided trading range this week with a slight bias to the downside as traders continued to assess the impact of the coronavirus on future crude oil demand in China.
The markets were underpinned by the prospect of additional production cuts from OPEC and its allies. However, gains were capped by rising U.S. inventories and uncertainty over the timing of the output cuts due to Russia's hesitancy to participate in the new plan.
Crude oil markets started the week under pressure but then began to stabilize as sellers let up on speculation OPEC and its allies would provide some relief for producers.
US Energy Information Administration Weekly Inventories Report
Gains were capped on Wednesday after data from the U.S. Energy Information Administration (EIA) showed crude inventories rose by 3.4 million barrels during the week-ending January 31, higher than forecast. Traders were looking for a 3.0 million barrel build.
Gasoline inventories fell 100,000 barrels during the last week of January. Gasoline production in the seven days to January 31 averaged 9.9 million bpd, versus 9.2 million bpd a week earlier.
Distillate fuels fell 1.5 million barrels last week. Distillate fuel production last week averaged 5 million bpd, down from a week earlier.
OPEC+ Production Cuts
Prices were boosted on Thursday after a technical committee advising OPEC and its…
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures posted a two-sided trading range this week with a slight bias to the downside as traders continued to assess the impact of the coronavirus on future crude oil demand in China.
The markets were underpinned by the prospect of additional production cuts from OPEC and its allies. However, gains were capped by rising U.S. inventories and uncertainty over the timing of the output cuts due to Russia's hesitancy to participate in the new plan.
Crude oil markets started the week under pressure but then began to stabilize as sellers let up on speculation OPEC and its allies would provide some relief for producers.
US Energy Information Administration Weekly Inventories Report
Gains were capped on Wednesday after data from the U.S. Energy Information Administration (EIA) showed crude inventories rose by 3.4 million barrels during the week-ending January 31, higher than forecast. Traders were looking for a 3.0 million barrel build.
Gasoline inventories fell 100,000 barrels during the last week of January. Gasoline production in the seven days to January 31 averaged 9.9 million bpd, versus 9.2 million bpd a week earlier.
Distillate fuels fell 1.5 million barrels last week. Distillate fuel production last week averaged 5 million bpd, down from a week earlier.
OPEC+ Production Cuts
Prices were boosted on Thursday after a technical committee advising OPEC and its allies led by Russia, known as OPEC+, agreed to recommend a provisional additional cut in oil output of 600,000 barrels per day (bpd) as it awaited the final position of Russia on the proposal, two sources told Reuters.
If adopted at a future meeting of OPEC+, the total size of the output curb from the group would rise to 2.3 million bpd.
"Saudi Arabia seems ready to push a very proactive and immediate production response," bank RBC said in a note.
Weak Ending to Promising Week
Crude oil futures were edging lower on Friday after Russia said it would need more time before committing to output cuts along with OPEC and other producers amid falling demand for crude as China battles the coronavirus epidemic.
Russian Foreign Minister Sergei Lavrov said on Thursday that Moscow supported cooperation with other producers, in remarks which appeared to boost prices in early trading.
However, Energy Minister Alexander Novak said on Friday Russia needed a few days to analyze the oil market and would clarify its position on deeper cuts next week.
Production Estimates Predict Declines in Demand
Novak also predicted global oil demand may fall by 150,000-200,000 barrels per day (bpd) in 2020 amid the virus - a relatively conservative forecast.
Earlier in the week, BP finance Chief Brian Gilvary told Reuters the economic impact of the coronavirus will reduce oil consumption for the whole year by 300,000 to 500,000 bpd, roughly 0.5% of global demand.
Earlier in the session on Friday, prices retreated from their highs after China's central bank governor said the world's second-biggest economy may experience disruptions in the first quarter.
Eurasia Group said it estimates a contraction in oil demand in China, the world's biggest importer of crude, of as much as 3 million bpd in the first quarter from 2019 levels.
Technical Analysis
Weekly March West Texas Intermediate Crude Oil Technical Analysis
Weekly Trend indicator
The main trend is down according to the weekly swing chart. The trend turned down earlier in the week when sellers took out the last swing bottom at $50.08. Since there wasn't an acceleration to the downside through this level, we are going to assume that the break through $50.08 was fueled by weak sell-stops.
The main range is $71.83 to $45.76. Its 50% to 61.8% retracement zone at $58.80 to $61.87 is major resistance.
The short-term range is $45.76 to $65.40. Its retracement zone at $53.26 to $55.58 is also resistance. Trading below this area is also helping to generate the downside bias.
Weekly Trend Indicator Forecast
Based on this week's price action and the current price at $50.57, the direction of the March WTI crude oil market during the week-ending February 14 is likely to be determined by trader reaction to this week's low at $49.31.
Bearish Scenario
A sustained move under $49.31 will indicate the presence of sellers. If this move generates enough downside momentum then look for the selling to possibly extend into the next major target at $45.76.
Bullish Scenario
Overcoming and sustaining a rally over $49.31 will signal the return of buyers. This could trigger a retest of the Fibonacci level at $53.26. Overtaking this level will indicate the buying is getting stronger with $55.58 the next upside target.
Conclusion
Prices are likely to remain under pressure as long as Russia continues to debate whether it was to increase the OPEC+ production cuts. If the deal falls through then look for prices to plunge even further. If Russia goes along with the proposal then look for a short-covering rally. However, gains are likely to be limited if China's demand forecasts continue to point lower.