WTI Crude oil continues its slow grind higher towards $60/b and Brent crude oil towards $65/b. Support has been provided by tight seasonal market conditions, trade talk hopes and most recently the decision by the OPEC+ group to lower their production ceiling by 500,000 barrels/day until March 2020.
Just like copper, as we highlighted in a recent update, crude oil has been in an uptrend since October. Apart from the mentioned drivers the recovery has coincided with an improvement in the global economy. OECD’s newest data on global leading indicators hinted that the global economy turned a corner in October, moving from contraction phase into the recovery phase.
Signs of the potential positive impact on crude oil demand from stabilizing growth was provided by the Energy Information Administration (EIA) yesterday. In their monthly Short Term Energy Outlook (STEO) they made a second monthly increase in their 2020 world oil demand forecast. From a low point in October at 1.3 million barrels/day they now see that higher by 120,000 barrels/day.
While these developments have all played their part in supporting crude oil the potential for further upside at this stage remains limited in our opinion. The fact remains that the global crude oil market, despite the additional OPEC+ cut, will still be facing a challenging 1H’20 due to an oversupplied market courtesy of another strong rise in non-OPEC supply of 2.33 million barrels/day according to the EIA.
WTI crude oil remains stuck in a range and is currently trading in a range around $56.60/b, the average price seen so far this year. The upside potential above $60/b looks limited beyond $61.50/b while support below $56/b can be found at $53/b as per the chart below.