U.S. West Texas Intermediate crude oil futures proved to be resilient this week, rebounding from a steep sell-off early in the week to post a new high for the year on Friday. The early in the week weakness was fueled by comments from President Trump, while the rally late in the week was helped stronger-than-expected U.S. economic data.
The lack of fresh developments over U.S.-China trade relations weighed on prices at times as well as increased U.S. production. However, both concerns were offset by the OPEC-led production cuts which continued to tighten the global supply, and an unexpected drop in U.S. crude oil inventories.
“Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!” Trump said in an early morning tweet.
Trump’s tweet was in response to the OPEC-led production cuts which began on January 1 and have been successful enough to trim the global supply glut. OPEC, along with its major ally Russia, meet in mid-April to review the deal, which is scheduled to last through the first six months of 2019.
Saudi Oil Minister Brushes Aside Trump’s Comments
Crude oil prices stabilized mid-week after Saudi Energy Minister Khalid al-Falih said OPEC is taking…
U.S. West Texas Intermediate crude oil futures proved to be resilient this week, rebounding from a steep sell-off early in the week to post a new high for the year on Friday. The early in the week weakness was fueled by comments from President Trump, while the rally late in the week was helped stronger-than-expected U.S. economic data.
The lack of fresh developments over U.S.-China trade relations weighed on prices at times as well as increased U.S. production. However, both concerns were offset by the OPEC-led production cuts which continued to tighten the global supply, and an unexpected drop in U.S. crude oil inventories.
Trump Not Happy With OPEC-led Output Cuts
The week started with WTI oil prices tumbling more than 3 percent on Monday after President Trump publicly urged OPEC to lower crude oil prices.
“Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!” Trump said in an early morning tweet.
Trump’s tweet was in response to the OPEC-led production cuts which began on January 1 and have been successful enough to trim the global supply glut. OPEC, along with its major ally Russia, meet in mid-April to review the deal, which is scheduled to last through the first six months of 2019.
Saudi Oil Minister Brushes Aside Trump’s Comments
Crude oil prices stabilized mid-week after Saudi Energy Minister Khalid al-Falih said OPEC is taking a measured approach to supply cuts.
“We are taking it easy,” he told CNBC, when asked about the U.S. president’s tweet.
“The 25 countries are taking a very slow and measured approach. Just as the second half last year proved, we are interested in market stability first and foremost.”
“We listen to the honorable president, and hear his concern about consumers and assure everybody, whether it’s him or developing country leaders, that we are focused on the interests of the global economy and consumers around the world as we are focused on the interests of producers,” al-Falih said.
OPEC to Continue Slashing Production
Al-Falih’s comments indicate that OPEC will continue with its strategy to cut output, trim inventory and stabilize prices. In fact, Saudi Arabia is expected to cut its output by up to 500,000 barrels per day below its quota in March. Furthermore, it is possible that it will decide on deeper production cuts when OPEC members meet again in April.
“We remain flexible, I am leading toward the likelihood of an extension in the second half (of 2019), but that’s not automatic,” al-Falih said. “If we find out the fundamentals are tightening, by June you can bet that I will be, just like we did last year, encouraging my colleagues within the OPEC plus to ease the voluntary limits we set on ourselves and to increase supplies to ensure that there is no unnecessary tightening in the market.”
“The current levels are not God-given, this is just the best compromise we could reach back in December,” al-Falih added, discussing the OPEC plus deal. “So if in June we find out we need to have a different limit, a different target from 1.2 million barrels, certainly it is open. But the easiest way forward, assuming it is still an oversupply, would be to roll over.”
Technical Analysis
Weekly April West Texas Intermediate Crude Oil Analysis
(Click to enlarge)
The main trend is down according to the weekly main trend indicator chart. However, momentum is trending higher.
The minor trend is up. A trade through $51.62 will change the minor trend to down. This will also shift momentum to the downside.
The main range is $76.01 to $43.00. Its 50% to 61.8% retracement zone at $59.51 to $63.40 remains the primary upside target area.
Weekly Technical Forecast
Given this week’s price action, we can conclude that the upside momentum is likely to continue next week as long as buyers can sustain a rally over the downtrending Gann angle at $54.01.
A sustained move over $54.01 will indicate the presence of buyers. If this can generate enough upside momentum then look for the rally to extend into the 50% level at $59.51. Since the main trend is down, sellers could show up on the first test of this level.
Overcoming $59.51 could trigger an acceleration to the upside with the next potential target the Fibonacci level at $63.40.
On the downside, if $54.01 fails as support then look for the selling to possibly extend into a support angle at $53.00, followed by the minor bottom at $51.62.
Conclusion
The rebound rally this week and a strong finish on Friday indicate that buyers are still in control. The catalysts underpinning the market are the OPEC-led supply cuts, and U.S. sanctions against Iran and Venezuela. We’re looking for these factors to continue to drive the price action.
However, we’re also looking for concerns over a global economic slowdown and rising U.S. production to provide some resistance, which could slow down the rally, especially as it nears the major retracement zone at $59.51 to $63.40.
A trade deal between the United States and China continues to be the wildcard. We saw this week that snags in the negotiations can weigh on prices. However, we also are confident that the announcement of a trade deal could spike prices higher.
Trumps response would be, "Go ahead Iran . . . Make my day."
If Iran threatens the World Economy its goodnight Iran.
New oil supplies . . US, Brazil, Guyana, S. Africa, Sudan, Nigeria, etc, etc, along with the accelerated Electric Vehicle demand spells the end to Saudi oil extortion. Tell Saudis the oil markets will "balance" and "stabilize" approx. $50. This probably means the end to the House of Saud. OPEC, BP, Hess, Harry Hamm and all the others that want $80 oil stop complaining , its call "Free Markets" .
With new technology Hess Energy NEW wells in 2018 are getting a 55% return AT $50.00 WTI. Obviously this bodes badly for OPEC and small U.S. frackers. The IOC's and Larger Shale companies can afford the upfront technology to reap the rewards. OPEC's lifting cost of a barrel of oil is $4.00. Unfortunately they need $83/bbl to fund there budget.