Crude Oil Monthly Forecast – March 2019

Crude Oil closed on a positive note for the second consecutive month in February 2019. A look at the weekly chart shows the price action surrounding crude oil in the global market saw a gradual upward biased momentum ending up reaching new 2019 highs. The overall price action was well in line with predictions made at the start of the month as price saw steady upside move but gains were capped well below $60 handle. Geopolitical events continue to control price action of crude oil in the global market while influence stemming from the USA continues to limit gains. Investors focus is now mainly on Sino-U.S. trade wars and the possibility of the U.S. imposing tariff on the European auto market to make them bend to demands. Both these events have great sway over crude oil price as a tariff imposed on either of these markets would greatly affect global economy as they are both industrial nations with a high level of manufacturing activity and slowdown in industrial activity would lead to reduced consumption in turn leading to lesser demand causing crude oil price to fall in the broad market. While multiple factors can be coined out as the reason for recent positive price action in the crude oil market, OPEC’s production and supply cut enforcement likely plays a key role providing crude oil bulls with fundamental support.

Unexpected Changes To Demand/Supply Ratio Helped Stage Positive Price Run

The first week saw mixed price action in global crude oil market as U.S. Sanctions on Venezuelan crude oil came into effect and had an unexpected impact on demand in the market causing price to climb at the start of the week, but record production activity in the USA as hinted from macro data updates helped Offset demand issues at the start resulting in two way price action and pair closing on dovish note. However, a strong impact and influence of OPEC’s production and supply cut enforecement helped limit declines and kept price action well above $52 handle across the month. The second week saw multiple factors come into play giving crude oil price a bullish edge in the market. News hit the market that Russia was planning to drop out of OPEC & Non-OPEC members agreement for production cut despite agreeing to cap production and output in the last quarter of FY 2019-19 during the summit meeting which occurred in December 2018. Given the fact that Russia hadn’t really cut back much on production and output when compared to OPEC nations and Russia’s decision to renegade on the agreement with OPEC caused tensions to escalate between Russia & OPEC leader Saudi Arabia.

Also reports that Saudi Arabia- the world’s largest manufacturer of crude oil plans to reduce crude oil production by 9.8 million barrels per day in March 2018 and Keystone pipeline bringing Crude oil from Steele City, Nebraska, to Patoka, Illinois was closed following the discovery of a leak in the St. Louis, Missouri added positive momentum to crude oil bulls helping see positive close for second trading session of the week. Optimism surrounding Sino-U.S. trade talks, visible impact on global supply and demand ratio owing to U.S. tariffs imposed on Venezuelan and Iranian crude oil and macro data which hinted at reduced inventory stockpile in OPEC nations hinting that they had reduced production and supply as agreed during the meeting painted a rosy picture for Crude oil. These factors caused the price of crude oil in the spot market to scale new three month highs and cross above $57 handle while macro data coming from the USA, both EIA & API stockpile updates hinted that production and supply activity remained near record highs and this capped further gains in Crude oil market.

Trade Talks Between Major Global Players & Cues on Upcoming OPEC Summit To Influence Directional Bias

The price fell further in the early half of the last week of February as US President Trump expressed his concerns over escalating crude oil price, weakening factory output data in China & Japan hinting at a slowdown in the economies which greatly rely on crude imports caused the price to slide initially. But regained momentum towards the end on reports which hinted that crude oil output from Venezuela has dropped by 60% following sanctions imposed on Venezuelan crude oil which became active this month and reports that ongoing tariffs on Chinese goods are to be maintained at 10% till further notice and no new tariffs will be imposed on Chinese goods in hopes for positive resolution of trade talks between China & U.S.A. This caused crude oil prices to gain sharply in the broad market scaling new 2019 highs at $58.03 per barrel. But spot crude oil price still closed on a dovish note as profit booking activity in the online market brought the price down to $55 handle as the trading session came to close for the last week of February. Moving forward, investors main attention will be on U.S.A’s trade talks with various allied nations any hint that trade talks could end of positive note will push price higher. Also, traders will be on watch out for crude oil inventory data, production data and oil rig count from all key markets as it will give great hints on demand and supply ratio during final quarter of ongoing financial year and also give an idea on whether OPEC will continue to keep output as such as reduce it even further to push up crude oil price based on data from first three months of 2019. Headlines pertaining to Sino-U.S. trade talks, expected production cuts by Saudi Arabia and cues relating to OPEC’s decision for the year ahead will be deciding factors of crude oil price from a fundamental perspective. The month ahead is likely to continue seeing positive price action for crude oil in spot and futures markets in all trading session unless headlines hints at dovish cues from OPEC members or unfavorable turn out in Sino-U.S. trade talks occurs which could influence a bearish breakout. To the upside, there is still strong resistance near $60 handle while strong support is found near $55 handle and $52 handle immediately underneath it. While news driven momentum may cause highly volatile price activity, the price action is likely to remain trapped with a range of $50 to $60 across the month of March 2019.

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