IGI Securities Limited – Commodity News

Karachi, January 10, 2018 (PPI-OT): Crude Oil

Technical

Crude Oil market initially went sideways yesterday, but then pulled back slightly to find support underneath. By doing so, the market continues the uptrend, breaking above the $62.50 level. I think at this point, we will probably continue to go to the upside, perhaps reaching towards the $63 level next, and then eventually the $65 level which I think is much more significant resistance. The uptrend line on the chart has held rather significantly, and I think that continues to be the story here: buying on the dips. I believe that the “floor” in the short-term trend to the upside is probably the $60 handle. I expect volatility, because there are a lot of conflicting areas of interest when it comes to crude oil, as the OPEC and Russian governments have suggested that they are going to cut back on production, and of course there are concerns about any type of tension in the Middle East.

Highlights

Oil is continuing its advance after a second annual gain the OPEC and its allies trim supply to drain a global glut

The group is facing the challenge of rising U.S crude output, which the EIA expects to rise above 10 million barrels a day

WTI for February delivery rose as much as 61 cents to $63.57 a barrel

Prices advanced $1.23 to $62.96 yesterday, the highest close since Dec 2014

U.S crude inventories probably dropped by 3.75 million barrels last week

Fundamentals

U.S. oil prices hit their highest since 2014 today as OPEC-led production cuts and healthy demand helped to balance the market, but analysts warned of possible overheating.

A broad, global market rally, including stocks, has also been fuelling investment into crude oil futures. U.S. West Texas Intermediate (WTI) crude futures were at $63.42 a barrel, up 46 cents. Earlier prices rose to $63.57, the highest since Dec. 9, 2014.

The extension of the OPEC agreement and declining inventories are all helping to drive the price higher. The Organization of the Petroleum Exporting Countries, together with Russia and a group of other producers, last November extended an output-cutting deal to cover all of 2018.

The cuts were aimed at reducing a global supply overhang that had dogged oil markets since 2014. The American Petroleum Institute said late on Tuesday that U.S. crude inventories fell by 11.2 million barrels in the week to Jan. 5, to 416.6 million barrels.

This came as the U.S. Energy Information Administration (EIA) raised its 2018 world oil demand growth forecast by 100,000 barrels per day (bpd) from its previous estimate. Official Energy Information Agency stocks data is due later in today’s trading session.

Amid the bull run, which has pushed up crude prices by more than 13 percent since early December, there are indicators of an overheated market. In the United States, crude oil production C-OUT-T-EIA is expected to hit 10 million pd next month, leaving only Russia and Saudi Arabia at higher levels.

In Asia, the world’s biggest oil-consuming region, refiners are suffering from high prices and ample fuel supplies. Asian oil prices are higher than in the rest of the world.

   

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