Supply Outage Fuels Oil Price Recovery

US benchmark June West Texas Intermediate crude oil futures increased by more than 1% on Thursday. This price rise was due to a reduction in U.S. crude reserves and a suspension of exports from the Kurdistan region in Iraq.

These factors counteracted the effect of a smaller-than-anticipated decrease in Russian oil supplies, which would have otherwise put downward pressure on the price of oil.

To prop up the prices, producers in the semi-autonomous Kurdistan region of northern Iraq have closed down or decreased production at various oilfields, as revealed by statements from the companies. This was in response to the suspension of the northern export pipeline. Additionally, there are expectations of more shutdowns in the near future.

US Crude Oil Stockpiles Decline Unexpectedly, Refinery Operations Hit Record Highs

The Energy Information Administration (EIA) reported a surprising decrease in crude oil inventories in the US for the week ended March 24.

The drop was attributed to higher refining activity, lower imports, and strong export rates, resulting in a decline of 7.5 million barrels in crude inventories to 473.7 million barrels, compared to an anticipated rise of 100,000 barrels.

Gasoline inventories dropped by 2.9 million barrels, exceeding expectations, but tight inventories could cause prices to reach $5 per gallon, which could harm demand in the beginning of the summer driving season.

Distillate inventories, including diesel and heating oil, increased by 300,000 barrels to 116.7 million barrels, contrary to expectations.

Iraq Suspends 450k bpd of Crude Oil Exports Due to Pipeline Situation in Kurdistan

Last Saturday, Iraq had to stop exporting approximately 450,000 barrels per day (bpd) of crude oil, which accounts for half a percent of the global oil supply.

The suspension was necessary due to the situation in the Kurdistan region (KRI), where a pipeline connects the northern Kirkuk oil fields to the Turkish port of Ceyhan.

Russian Crude Oil Production Cuts Below Target in March

In the first three weeks of March, Russian crude oil production cuts were lower than expected, which could have impacted the market negatively.

However, the situation in Iraq and the lower US stockpiles helped offset the potential bearish sentiment caused by the production cut.

According to sources familiar with the data, Russian production declined by 300,000 bpd, while the targeted cut was 500,000 bpd, which represents about 5% of Russian output.

OPEC+ Likely to Maintain Current Oil Output Deal, Delegates Say

Five delegates from OPEC+ stated that the group is likely to maintain its current deal on reducing oil output during a meeting on Monday, as oil prices have recovered from their recent lows.

While oil prices may remain volatile in the short term, rising Chinese crude imports and lower Russian production are expected to support prices in the coming quarters.

Despite the recent drop in oil prices, OPEC+ delegates did not suggest any further actions to support the market, and predicted that prices would stabilize.

The group reduced its output target by 2 million barrels per day in November 2020, and Saudi Arabia's energy minister has stated that the reduced target will continue until the end of 2023.

Weekly Technical Analysis

Weekly June WTI Crude Oil

Trend Indicator Analysis             

The main trend is down according to the weekly swing chart. However, momentum is trending higher following the confirmation of the prior week’s closing price reversal bottom. A move through $80.97 will change the main trend to up. A trade through $64.58 will signal a resumption of the downtrend.

Following a prolonged break in terms of price and time, June WTI crude oil formed a potentially bullish closing price reversal bottom the week-ending March 24. This is significant because it could signal the start of a 2-3 week counter-trend rally.

Retracement Level Analysis

The contract range is $37.04 to $100.48. Its retracement zone at $68.76 to $61.27. The market is currently trading just above this zone after a successful test of $64.58 the week-ending March 24.  

The short-term range is $86.40 to $64.58. Its retracement zone at $75.49 to $78.06 is resistance. 

The minor range is $80.97 to $64.58. Its pivot is $72.78.

Weekly Technical Forecast

The direction of the June WTI crude oil market the week-ending April 7 is likely to be determined by trader reaction to the minor pivot at $72.78.

Bullish Scenario

A sustained move over $72.78 will signal the presence of buyers. This could create the upside momentum needed to challenge the retracement zone at $75.49 - $78.06.

Overtaking $78.06 will indicate the buying is getting stronger with the main top at $80.97 the next target area.

Bearish Scenario

A sustained move under $72.78 will indicate the presence of sellers. If this move creates enough downside momentum then look for a test of the major 50% level at $68.76, followed by the main bottom at $64.58.

Short-Term Outlook

Based on the current information, the short-term forecast for crude oil prices is likely to remain stable or increase slightly.

The reduction in US crude inventories, the suspension of exports from the Kurdistan region in Iraq, and expectations of more shutdowns are all factors that may support higher prices.

However, tight gasoline inventories may cause demand to drop, which could potentially limit any significant price increases.

Additionally, OPEC+ delegates have suggested that they are likely to maintain their current deal on reducing oil output, which may also help support prices.

Overall, the market is expected to remain somewhat volatile in the short term, but with the potential for moderate price increases.

Technically speaking, the chart pattern suggests a potentially bullish tone following the confirmation of a closing price reversal bottom from the week-ending March 24. However, the main trend is still down, and the market needs to break out above $80.97 to turn the trend to up.

The direction of the market for the week-ending April 7 will depend on trader reaction to the minor pivot at $72.78, with a sustained move above or below this level indicating a bullish or bearish scenario, respectively.