Oil Price Fundamental Daily Forecast – Testing 2019 Highs Amid Tightening Global Supply

Technical factors are also contributing to the strength in the crude oil market. WTI crude will remain bullish as long as the market can hold above $59.63. Brent’s key support is $67.74.
James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and International-benchmark Brent crude oil futures hit a new high for the year early Thursday, continuing yesterday’s rally. Underpinning the markets are the OPEC-led production cuts and the U.S. government sanctions against Iran and Venezuela. The markets are also getting a boost from an expected drop in U.S. crude oil stockpiles.

At 09:16 GMT, May WTI crude oil futures are trading $60.18, down $0.05 or -0.08% and May Brent crude oil futures are at $68.61, up $0.15 or +0.20%.

OPEC-led Cuts are Working

After hitting a new high for the year earlier in the session, WTI and Brent crude oil have now retraced more than 50% of their sell-off from their October 2018 tops. This rally is tied to the fact that OPEC’s crude oil output has slumped from a mid-2018 peak of 32.8 million barrels per day (bpd) to 30.7 million bpd in February.

U.S. Sanctions Also Impacting Supply

Furthermore, the U.S. sanctions against Venezuela and Iran are also disrupting supply.

“Venezuelan exports to the U.S. have finally dried up, after the sanctions were placed on them by the U.S. administration earlier this year,” ANZ bank said on Thursday.

Traders also expect to see more of an impact from the U.S. sanctions on Iran when the Trump Administration cuts Iran’s crude exports by about 20 percent to below 1 million bpd from May by requiring importing countries to reduce purchases to avoid U.S. sanctions.

U.S. Supply Getting Tighter

According to the U.S. Energy Information Administration, U.S. stockpiles are getting smaller. On Wednesday, the EIA reported that inventory fell 9.6 million barrels, to 439.5 million barrels, during the week-ending March 15. This was the largest drop since July. Additionally, inventories fell to their lowest level since January.

Daily Forecast

Technical factors are also contributing to the strength in the crude oil market. WTI crude will remain bullish as long as the market can hold above $59.63. Brent’s key support is $67.74.

Despite the market’s strength due to the tightening supply, gains may be capped by concerns over rising U.S. production. The U.S. could even increase output as prices rise. Demand remains a concern, however, due to the global economic slowdown. The weakness in the domestic and global economies was acknowledged by the Fed on Wednesday when it strongly hinted it would take a pause, and not raise interest rates in 2019.

The U.S.-China trade dispute continues to weigh on demand also due to its impact on the global economy. Traders aren’t sure if the two economic powerhouses are close to settling the dispute, or if a trade deal is still in the distant future.

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