By Ole Hansen, Head of Commodity Strategy at Saxo Bank
WTI and Brent crude oil both remain rangebound following a failed attempt to move higher. Both found technical resistance after correcting 38.2% of the October to December sell-offs. In WTI the level is $55.5/b and it attracted enough selling to avoid a break higher towards the next potential target of $59.6/b. Supply fundamentals have increasingly been turning supportive in recent weeks but against this the market still worries about the yet-to-be-realised – if at all – impact on demand from weaker macroeconomic fundamentals.
The Opec+ group of nations’ efforts to cut production and support the price has so far been quite successful. While some uncertainty with regards to Russian efforts has been raised, Opec, led by Saudi Arabia, has led from the front with data from Bloomberg showing a 2.1 million b/d drop in production during the past two months.
Adding to the support is the political crisis in Venezuela where President Nicolas Maduro’s future remains the focus. Even the Russians have indicated that Maduro’s popular support is draining away following years of economic mismanagement. Libya’s biggest oilfield, meanwhile, has been closed since December due to ongoing hostilities between eastern military commander Haftar and the UN backed authorities in Tripoli.
Despite these supportive price developments crude oil traded lower with disappointed longs bailing out following the failure to break higher. Based on current fundamentals the upside potential looks the greatest but the market is clearly still worried about the potential negative impact on demand should global growth continue to deteriorate. The key level of support to look out for remains $50/b in WTI.
Given the focus on macroeconomic developments an important week lies ahead. Monthly oil market reports from EIA and Opec on February 12 and the IEA on February 13 will be watched closely for any signs of downgrades to future demand growth.
Source: Saxo Bank
Oil prices have been flat for several days, weighed down by concerns about the health of the global economy, plus the potential return of supply from Libya. “Growing economic concerns, falling stock markets and emerging doubts that the trade conflict between the US and China will be resolved are putting oil prices under pressure,” Commerzbank wrote in a note on Friday.
Trump rules out Xi meeting, raising trade concerns. President Trump said he would not meet Chinese President Xi Jingping before the March 1 trade deadline. A meeting of the two, experts suggest, would be an indication that the U.S. and China were close to reaching a sweeping trade deal. Trump has promised to hike tariffs on $200 billion worth of Chinese imports from 10 to 25 percent. White House economic advisor Larry Kudlow said that there is a “pretty sizable distance” to go on the trade talks. The Wall Street Journal reported that U.S. business titans are urging Trump to make a deal.
Libyan National Army seizes Sharara field. The Libyan National Army (LNA), run by General Khalifa Haftar, have reportedly taken control of the country’s largest oil field, the Sharara. The 315,000-bpd field had been offline since December, leading to a significant decline in oil production. The seizure of the Sharara could lead to its reopening. Oil prices saw downward pressure on the news