March West Texas Intermediate Crude Oil futures are trading inside last week’s and the previous week’s range, suggesting investor indecision and impending volatility. Since the first of the year, the price action can best be described as balanced.
The balanced price action can be attributed to two factors, the OPEC/non-OPEC plan to cut output and the rising U.S. production.
Helping to underpin the market this week is the news that OPEC and non-OPEC members are complying with the plan to reduce output. A report early in the week said that the nations involved in the program have reduced output by about 1.5 million barrels per day versus the 1.8 million barrels pledged.
Helping to put a cap on the market is the news of increased U.S. oil production. According to the U.S. Energy Information Administration, crude oil stockpiles rose by 2.8 million barrels in the week-ending January 20, roughly in line with expectations. The EIA also reported that gasoline stocks rose by 6.8 million barrels, versus a 498,000-barrel gain estimate. Distillate stockpiles also increased by 76,000 barrels, versus expectations for a 1 million-barrel drop.
Other than the weekly chart pattern, there is nothing in the fundamentals to suggest a breakout in either direction is imminent. I just know from reading charts that the current pattern indicates we are going to see a volatile move over the near-term. However, the charts can’t tell us the direction.