IGI Securities Limited – Commodity News

Karachi, March 18, 2019 (PPI-OT): Crude Oil

Technical

U.S West Texas Intermediate crude oil futures finished sharply higher last week, putting the market in a position to challenge a major 50% to 61.8% retracement zone. Reaction to this zone is likely to determine the longer- term direction of the market. The market was underpinned last week by the OPEC-led production cuts and U.S sanctions against Iran and Venezuela. Triggering a surge to the upside was an unexpected drop in U.S crude oil inventories. The main trend is up. A trade through $59.25 will signal a resumption of the uptrend. A move through $54.87 will change the main trend to down. The main range is $75.80 to $43.46. Its retracement zone at $59.63 to $63.45 is the primary upside target. The short-term range is $43.46 to $59.25. If the trend changes to down then look for the selling to possibly extend into its retracement zone at $51.36 to $49.49.

Highlights

Crude oil futures were lower in reaction to the latest information on OPEC production levels

The market is still torn between economic concerns and high U.S oil production on one hand and remarkable OPEC+ compliance on the other

Brent prices hit their highest so far this year at $68.14, saw a gain of approximately 2.1% on the week

OPEC is due to meet in April and then again in June to decide its output policies

The United States has imposed stiff sanctions on OPEC’s third largest oil producer, Iran

Fundamentals

Oil prices dipped today amid concerns that an economic downturn may dent fuel consumption, but crude markets remain broadly supported by supply cuts led by producer group OPEC and U.S sanctions against Iran and Venezuela.

Brent crude oil futures were at $67.03 per barrel, down 13 cents, or 0.2 percent, from their last close, but not far off the $68.14 per barrel 2019-high reached last week.

U.S West Texas Intermediate futures were at $58.32 per barrel, down 20 cents, or 0.3 percent, from their last settlement, and also not far off their 2019-high of $58.95 from the previous week.

The greatest downside risk to our oil price view is demand weakness on slower economic growth. Our base case is that global oil demand will increase by 1.3 million barrels per day in 2019.

The United States has been increasing its own oil exports steeply in recent months while imposing sanctions on Venezuela and Iran to reduce their shipments to global markets.

OPEC and its allies have cut output by 1.2 million barrels per day – or 1.2 percent of global demand, since January to help rebalance the global oil market and prop up prices.

After the review meeting on March 17 and 18, ministers from the so-called OPEC+ alliance will gather in Vienna next month, and again in June, to decide on output policy for the second half of the year.

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