U.S. West Texas Intermediate and internationally-flavored Brent crude oil soared to nearly a four-week high on Tuesday after top exporter Saudi Arabia said it was determined to end a supply glut.
December WTI Crude Oil settled at $52.47, up $0.57 or +1.10% and January Brent Crude Oil finished the session at $58.17, up $0.90 or +1.57%.
“We are very flexible, we are keeping our options open. We are determined to do whatever it takes to bring global inventories down to the normal level which we say is the five-year average,” Saudi Arabia Energy Minister Falih told Reuters.
Currently, OPEC and other major non-OPEC producers including Russia, have cut oil output by about 1.8 million barrels per day (bpd) since January. The pact runs to March 2018.
The market was supported on Tuesday because traders believe that “keeping our options open” means the OPEC-led group is likely to extend or deepen the production cuts.
Forecast
The OPEC comments and the drop in Iraqi exports because of the military activity with the Kurds is enough to support the market. However, late Tuesday’s American Petroleum Institute’s weekly inventories report may put some early downside pressure on prices.
According to the API, U.S. crude stocks fell by 519,000 barrels last week. That compared with estimates for a decline of 2.6 million barrels.
Gasoline stocks fell by 5.8 million barrels, compared with estimates for a 17,000-barrel decline. Distillate fuels stockpiles, which include diesel and heating oil, fell by 4.9 million barrels, compared with expectations for a 860,000-barrel drop.
The U.S. Energy Information Administration’s weekly inventories report is expected to show a 2.6 million barrel draw.
The API news and a smaller EIA draw may lead to some profit-taking on Wednesday. However, this is likely to set up another buying opportunity since the main driver of the price action at this time is the decline in Iraqi inventories and speculation that the OPEC-led strategy will be extended.
Both the WTI and Brent Daily charts show the markets are poised to breakout to the upside. However, a breakout fueled by buy stops is not likely to last. Longer-term buyers would like to see a breakout supported by real buying in reaction to an extension of production cuts.