Crude Oil Price Analysis for March 20, 2018

Crude oil prices were nearly unchanged on Monday despite a huge selloff in equities that drew attention to riskier assets. The dollar gave back some of its recent gains helping to buoy crude oil prices ahead of this weeks Federal Reserve Monetary policy decision.  Oil price could face downward pressure if the Fed is more hawkish than expected. It appears also that Russia will continue to comply with the OPEC production cut deal.

Technicals

Crude oil prices rebounded from session low bouncing at support near the 10-day moving average at 61.47. Prices remain above former resistance near a downward sloping trend line that comes in near 62.15. Additional resistance is seen near the March highs at 63.28.  Momentum is slightly positive. The MACD (moving average convergence divergence) index recently generated a crossover buy signal. The MACD histogram is printing in the black with a flat trajectory which points to consolidation.

Russia Should Continue to Comply with Production Cuts

Russia will continue to comply with the OPEC oil production cut deal until the deadline set in the extension agreement last November and even into 2019 if need be, Russia’s Energy Minister Alexander Novak said. Novak added, however, that Russia is also on board with an earlier end to the deal, should its partners decide it was the best course of action to follow.

The official also reiterated that the best approach to ending the deal would be a gradual withdrawal, which could begin in the second half of this year, so discussions of the exit strategy of the partners in the deal could take place at their meeting in June. Novak said he was not bothered by the growing shale oil production in the United States, or the increasingly likely possibility that the United States would become the largest oil producer in the world, overtaking Russia.

Novak’s remarks come amid growing doubts that OPEC will have the patience to see the deal through its original end in December this year. With U.S. production consistently rising and predictions that it will hit 11 million bpd before the year’s end, it must be hard for rival producers to see a growing portion of this production go into markets where they hold a significant share.

Notably, the International Energy Agency said in its latest monthly report on oil that Venezuela’s production decline rate could accelerate this year and “without any compensatory change from other producers it is possible that the Latin American country could be the final element that tips the market decisively into deficit.” This should be good news for OPEC and its partners in the deal, or maybe a mixed blessing as prices would certainly jump and boost U.S drillers’ motivation to continue expanding production. On the other hand, higher oil prices would help smooth out the exit strategy of the pact.

U.S. wants reform of WTO

According to WTO Director General Roberto Azevedo, the U.S. has raised concerns about the functioning of the World Trade Organization and has asked for reforms. Azvedo reportedly told reporters on the sidelines of an informal meeting of 50 WTO members that the global trade environment was quite risky and that the trade body had sought an “open and honest” conversation with its members. The U.S. was not represented at the New Delhi meeting, but Azevedo said Washington argued that global trade had changed since the WTO was set up in 1995 and that it wants “some upgrade and reforms”.

The Feds Forecast Could Move the Dollar

Fed forecast revisions, the Summary of Economic Projections, will be released Wednesday alongside the FOMC policy statement. It should reveal big boosts in the 2017 GDP estimates, alongside modest upward tweaks in the 2018 PCE chain price estimates and small trimmings in the jobless rate estimates across the forecast horizon. For GDP, the Fed’s December estimates incorporated the CBO scoring of the Senate tax bill, but not the more aggressive CBO scoring of the final tax law, and the Fed has yet to incorporate growth boosts from the February budget bill. GDP growth boosts of 0.2%-0.3% through 2019, and smaller boosts in 2020. There should be a 0.1% increases in the Fed’s 2018 headline and core PCE chain price estimates, and the 2019-20 estimates should remain the same. The jobless rate estimates could be reduced by 0.1% across the board, given a stronger growth path for payrolls.