Oil Outlook: Oil prices on the rise

Since our last report, oil prices seem to have been energised by some bullish tendencies since our last report. In the current report we are to discuss the conditions characterising the US oil market currently, as well as factors affecting wti demand and supply in the international wti market. We are to complete the fundamentals included in the report with a technical analysis of WTI’s chart. 

US oil market tightens

We make a start by noting that the US oil market shows signs of tightening. On Friday, we noted the halt in the rise of active WTI rigs in the US. This often signals a negative trend for oil prices. It’s characteristic that the US Baker Hughes oil rig count dropped by one.

Overall, the indicator’s readings have plateaued, which may suggest that demand in the US oil market has stalled. Yet the situation reversed in the coming week as US oil inventories substantially dropped. It’s characteristic that API reported an unexpected decrease of US wti inventories by -3.341 million barrels.

Similarly, the EIA reported a drop in US oil inventories, which was even larger than API’s, with a decrease of -4.6 million barrels. The drawdowns reported by the two wti agencies tend to highlight how oil production levels.

In the US, supply was unable to meet the aggregated oil demand. Implying relative tightness in the US oil market. This is considered bullish for WTI prices. 

International geopolitical challenges and OPEC’s intentions

Hopes for a ceasefire agreement in Ukraine and the safe passage agreement in the Black Sea. These factors tend to weigh on oil prices. Yet, we maintain doubts about the viability of such a ceasefire. Russia appears unwilling to abide by it.

Should we see the ceasefire agreement falling through we expect to see a possible bullish effect on oil prices. While oil traders may have largely priced in the agreement, it could have a minimal bearish impact on WTI prices.

On the other hand the war in Gaza is ongoing allowing for some nervousness to be present among oil traders. An escalation is possible and such a scenario may have a bullish effect on oil prices, yet the options for the Palestinians are very few and noes sems so good, thus an easing may occur that may weigh on oil prices.

Yet, the issue has already fatigued WTI traders. Only an exceptional development could impact WTI prices.Last but not least, we note US President Trump’s announcement that the US will impose tariffs on countries buying oil from Venezuela.

Thus, the US tariffs could tighten the supply in the international oil market. Potentially having a bullish effect on oil prices.

As for OPEC, headlines highlight the oil producer’s organisation intentions to increase oil production levels, news that tend to have a bearish effect on oil prices.

The warning by Russia’s central bank of a possible scenario were the US and OPEC could flood the international wti market, maintaining thus oil prices at low levels for a prolonged period.

Although the scenario mentioned earlier is remote, it is indicative of the possible bearish effect. An increase in WTI production by OPEC members could have a negative impact on oil prices.   

Oil demand levels

Oil demand levels are substantially influenced by economic activity in the manufacturing sectors of the US and China. In the coming week, we note the release of China’s NBS and Caixin manufacturing PMI figures as well as from the US the ISM manufacturing PMI figure for the same month.

Should the indicators’ readings rise beyond expectations, the releases could support wti prices as they could foreshadow higher levels of oil demand. On the other hand, the US tariffs policy continues, with the latest highlight being US President Trump’s announcement. This includes a 25% tariff on US imports of automotives.

The government will apply the tariffs on passenger cars and light trucks, starting from April 3rd.

Germany, Japan, Korea, and Mexico will be the most affected countries, as the new tariffs will come on top of the duties already introduced for steel and aluminum products.

In general, the US tariffs are expected to slow down economic activity at a global level, possibly having adverse effects on oil prices. Overall though we tend to highlight more the supply side of the international wti market as the demand is expected to be increased yet there seems to be ample of supply in on the international oil market despite some ups and downs.

Oil Technical Analysis

WTI Cash Daily Chart

• Support: 68.40 (S1), 65.00 (S2), 61.65 (S3)
• Resistance: 72.20 (R1), 75.65 (R2), 79.35 (R3)

WTI’s price has been on the rise since our last report, breaking the 68.40 (S1) resistance line, now turned to support. The upward motion seems to be supported by an upward trendline incepted since the 19  of March and as long it remains intact we intend to maintain our bullish outlook.

On the other hand though, we also note that the RSI indicator has failed to substantially rise above the reading of 50, implying some doubts on behalf of trader to push the price action of WTI higher.

Should the bulls maintain control over the commodity’s price action we may see it breaching the 72.20 (R1) resistance line and start aiming for the 75.65 (R2) resistance level.

Should the bears take over, we may see WTI’s price action breaking initially the prementioned upward trendline, in a first signal of an interruption of the upward motion and continue lower to break the 68.40 (S1) support line clearly and start aiming for the 65.00 (S2) support base.                     

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