IGI Securities Limited – Commodity News

Karachi, January 16, 2018 (PPI-OT): Crude Oil

Technical

The WTI Crude Oil markets have pulled back just a bit, testing the 24-hour exponential moving average. However, we rallied from there and trying to reach towards the $65 level. If we can finally break above there, the market should continue to go much higher, but in the meantime, I think that short-term pullbacks are buying opportunities we can take advantage of. Russia has discussed leaving the production cuts agreement, but I think at this point this is probably more a deal where the US dollar falling is lifting the crude oil markets, as well as growing global economies. Brent markets initially tried to rally during the trading session on Monday, but then found the $70 level to be a bit too much. We pulled back a bit, reaching towards the $69.50 level, and the 24 hour exponential moving average. We rallied from there to reach towards the $70 handle again.

Highlights

Hedge funds increase their bullish bets to the highest in more than a decade

Oil prices extending a two-year rebound as the OPEC and its allies trim production to drain a global glut

WTI for February delivery was at $64.43 a barrel on the New York Mercantile Exchange, up 13 cents

There was no settlement yesterday because of the Martin Luther King Jr. holiday

Futures closed at $64.30 on Friday, the highest level since December 2014

Fundamentals

Crude oil dipped today but remained near $64.50 a barrel, a level not seen since 2014’s dramatic market slump. Prices have been driven up by oil production curbs in OPEC nations and Russia, as well as strong demand thanks to healthy economic growth.

U.S West Texas Intermediate (WTI) crude futures were at $64.18 a barrel, down 12 cents, or 0.19 percent. WTI hit a December 2014 peak of $64.89 a barrel in early trading.

The market is hitting technical resistance. We need to see a confirmation of a true break past $70 a barrel. There is lots of speculative length in WTI at the moment, the force is from the U.S. market right now so we need the direction they give coming back from holiday.

Trading was thin yesterday due to a holiday in the United States. Oil has been pushed higher by an effort led by the Organization of the Petroleum Exporting Countries and Russia to withhold production since January last year. The cuts are set to last through 2018.

The restraint has coincided with healthy oil demand, pushing up crude by almost 15 percent since early December. This rally has been driven first by robust fundamentals, with strong demand growth and high OPEC compliance accelerating.

A major factor holding back crude prices in 2017, the surge in U.S. production, has stalled at least temporarily as icy winter weather in North America has shut some facilities.

Instead of hitting 10 million barrels per day this month, as widely expected, U.S. production fell from 9.8 million bpd in December to 9.5 million bpd currently. However, most analysts still expect U.S. production to break through 10 million bpd soon.

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