The Crude Chronicles – Episode 28

The Crude Chronicles – Episode 28

Oil Recovers As Stimulus Helps Risk Appetite Rebound

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Benchmark WTI prices have risen steadily this week, spurred on by a broad improvement in global investor appetite. Markets started the week in better health amidst growing expectations of central bank intervention in response to the growing threat from COVID-19. On Tuesday, the Federal Reserve rewarded these expectations as it announced an unexpected .5% rate cut. The reduction in policy, which comes well ahead of the planned March 18th FOMC, is an historic move. The last time the Fed adjusted policy independent of planned meetings was in December 2008 as the GFC raged, reflecting the concern with which the Fed regards the threat from COVID-19.

As risk markets recovered some of the prior week’s losses, WTI sentiment improved. We have also seen buying in WTI this week ahead of the OPEC meeting today which is widely expected to see the cartel stepping up its fight against weakness in oi prices. OPEC currently has production cuts of 1.7 million barrels per day in place and, given the more than $20 fall this year, the market now expects this to be strongly increased. However, there is dispute over the necessary increase. Last month, the OPEC+ Joint Technical Committee (OPEC+ referring to OPEC plus allied nations led by Russia) floated a potential increase of 600k barrels per day. Meanwhile, Saudi Arabia is reportedly pushing for a bigger increase of 1 million barrels more each day. This is a crucial moment for oil markets and if OPEC fails to deliver a strong enough increase in cuts here, the consequences could be devastating for oil prices.

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EIA Reports Inventory Build Once Again

The latest EIA report released this week reflected the loss of demand currently impacting oil prices. US WTI levels increased for the sixth week in a row last week, heightening concerns around the demand outlook for oil and once again putting the emphasis on today’s OPEC meeting. The report showed that WTI levels were higher by 0.8m million barrels. Though lower than the 2.6million barrel surplus forecasted, the data has still stalled WTI upside for now.

Technical Views

Crude (Bearish below $50.50)

From a technical perspective. WTI has stalled at a retest of the broken yearly S1 and monthly pivot at $47.80. While this level holds as resistance, there is the risk of a continuation lower to the monthly S1 at $40.76. If price moves higher from here, the next challenge will be the retest of the 50.50 level. Bulls will need to see price back above that level to alleviate the near term downside pressure.

The Crude Chronicles - Episode 28

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

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