Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

WTI Crude Oil Outlook Remains Murky

Published 22/02/2018, 12:13
Updated 18/05/2020, 13:00

After falling for the past two days, the price of WTI oil has bounced back off its lows to trade flat to slightly firmer at the time of this writing on Thursday morning. However WTI still remains in the red three and half days into the week. As a reminder, oil prices rallied last week and made back a significant chunk of their losses from the week before, but not enough to turn positive on the month. At $61.30, WTI thus remains more than $5 or 8% below the high of $66.62 hit on January 25. In other words, oil prices have been trending lower since hitting their best levels since 2014 at the start of the year.

Rising US oil production likely to limit price gains

Up until the start of February, oil prices had been on the rise with WTI climbing for five consecutive months. Part of the reason for this had been compliance with the production cuts by OPEC and non-OPEC countries remaining surprisingly high. The rally was aided further by significant reduction of crude stocks at Cushing in recent weeks. However, it remains to be seen if oil prices will be able to push back higher from here. I, for one, am doubtful about the prospects of seeing significantly higher oil prices in the near term. After all, the recent big increases in rig counts point to increased levels of production in the US.

If growth in demand does not keep up, crude inventories are likely to rise again. What’s more, the OPEC will not be able to keep its production agreement with other non-OPEC members for too long should the US continue to win more market share.

Canada’s crude problem

And let’s not forget about Canada. The problem there is probably more severe than in the US. After all, Canada’s main export market is its southern neighbour – the US, which is fast becoming self-sufficient in its energy needs. So, it doesn’t really need Canadian oil. As a result, Canadian oil companies are forced to sell crude at a significant discount. With Canada’s oil selling at just $34 per barrel, this represents a 45% discount to US oil. Canada wants to deal with the problem by building new pipelines so that it could exports its oil elsewhere, but there have been delays in approving the plans and this is costing the Canadian economy dearly. So, the Canadian dollar is not just falling because of expectations that oil prices will remain low, but also because of Canada’s own crude problems.

EIA oil stockpiles in focus

Today’s focus is on crude inventories data from the US Energy Information Administration (EIA). Last night, the American Petroleum Institute (API) reported that US crude stocks unexpectedly fell as imports slumped. Crude stocks at Cushing fell sharply again, this time by 2.6 million barrels, while stocks of distillates decreased by 3.6 million. If the official EIA data confirm these figures then we may see WTI stage a more meaningful recovery. However, if they contradict the API numbers then oil prices may head lower again as concerns over supply resurface.

WTI’s technical outlook doesn’t look too great

Regardless of what happens today fundamentally, the technical outlook doesn’t look too great at the moment. WTI’s inability to hold above the 2015 high of $62.55 last month was clearly a bearish development as price subsequently fell sharply. It has since found some support around old resistance in the $58.20 to $59.00 region.

At the start of this week, WTI has again tested the 2015 high and so far, the buyers were unable to push above that level and we are back within the range of last week’s price action. Unless the buyers step up their game, there is a danger we could see WTI take another dive in the coming days and break that noted $58.20-$59.00 support area. If this scenario plays out then prices could potentially accelerate their falls as the longs scramble for the exits. From a bullish point of view, a break back above $63.80 would be ideal, unless we see a significant reversal price pattern at lower levels first.

WTI Weekly

WTi Weekly

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Original Post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.