Crude Oil Price Analysis for January 9, 2018

Crude prices are up 0.18%, hitting a high at 61.94 in the front month WTI futures benchmark, but remain below last Thursday’s major-trend peak at 62.21. The market remains buoyant, with the decline in the U.S. rig count on Friday providing the latest addition to the bullish narrative and put a temporary dent in the argument that U.S. shale production is set to expand notably.

Technicals

Crude oil prices tested the 62-handle but was unable to move higher.  Very strong refinery demand and a backwardation in the term structure are keeping prices buoyed. Prices generated an inside day which is a sign of indecision.  Support is seen near the 10-day moving average at 60.54, while resistance is seen near the May 2015 highs at 62.58. Positive momentum is decelerating as the MACD (moving average convergence divergence) histogram is printing in the black but the trajectory is declining which reflects consolidation. The RSI (relative strength index) moved from above the overbought trigger level of 70, into the neutral range which generally is a prelude to a correction.

OPEC is Following Geopolitics in Iran

OPEC is closely following the protests in Iran and the economic struggles of Venezuela, but the cartel will not intervene in the market by ramping up supply unless significant prolonged production disruptions in those two countries occur. A Senior OPEC source say “Even if there is a supply disruption OPEC will not raise output”.

“OPEC’s policy is to bring inventories down to their normal levels and will stay the course, unless the disruption in supply of something like 1,000,000 barrels per day persists for more than a month, and causes shortages of crude supply to consumers,” according to the source.

Oil prices ended 2017 on a higher note, with the Forties Pipeline shutdown and a Libyan pipeline outage in the second half of December. Then at the beginning of 2018, the price of oil continued to rise as protests in Iran spooked the market, with oil prices making their best start to a year since 2014.

Although analysts don’t see Iranian unrest directly hindering Iran’s oil production, some think that the protests and their clampdown could embolden U.S. President Donald Trump to refuse to waive the sanctions on Iran’s oil and energy industries later this month.

Venezuela, for its part, is woefully short on cash, gasoline, and pretty much everything as its economy continues to collapse while President Nicolas Maduro tries to service sovereign bond payments and those of the state oil firm PDVSA. Venezuela’s oil production has been falling steadily over the past months, and OPEC’s crude oil production remained largely unchanged from November in December, mostly thanks to a 50,000-bpd decline in Venezuela’s production, a Bloomberg survey showed last week.

According to an S&P Global Platts survey released on Monday, Venezuela’s oil production dropped by even more than expectation which were 100,000 barrel per month on the month in December to 1.70 million barrels per day the lowest level since a major strike affected the country’s industry in December 2002-February 2003. Not counting strike-affected months, Venezuela’s crude oil production was last this low in August 1989.

Strong Sentiment is Buoying Oil

Eurozone Sentix Investor confidence rose to 32.9 in January from 31.3 in the previous month, indicating that the positive mood on stock markets continued at the start of the year. Sentix reported that there was no sign of a loss of momentum across indicators, with even latecomers such as Eastern Europe and Latin America continuing to improve, but Sentix earnings that the broad and synchronous upswing also means that the likelihood of overheating is increasing.