Crude oil grinds higher towards resistance

Ole Hansen

Head of Commodity Strategy, Saxo Bank Group

Summary:  WTI Crude oil continues its slow grind higher towards $60/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. Later today the market will focus on the weekly stock report from the US Energy Information Administration.


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.

Source: Saxo Bank

Later today at 1530 GMT the EIA will publish its “Weekly Petroleum Status Report”. This weekly update on stocks, trade and production gives the market a regular peek inside the US energy market, hence its ability to often move the global oil price.

Some confusion lingers after the American Petroleum Institute said that U.S. crude oil stocks rose by 1.4 million barrels last week. EIA surveys, like the one below from Bloomberg, point to a 3 million barrels decline. Both however agree that product stocks will rise which, if realised, could offset the potential positive impact from a stock decline in oil.

Below a few charts showing some of the latest trend from the EIA report. As usual I will publish the result through my twitter profile: @Ole_S_Hansen

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.