Oil Prices Decline Despite Saudi Production Cut
?? Fundamentals
After trading to highs not seen since October of last year, Oil prices have started to weaken, despite what on the surface seemed like bullish news out of Saudi Arabia. OPEC’s largest producer cut Oil production by nearly 5% in December, but some traders looked at this announcement as a sign that global demand continues to be weak and the market appears to be oversupplied, especially at current price levels. This weakness in Oil prices is especially pertinent in Brent vs. WTI Crude, which may be a signal that some traders look for global demand to continue to remain lackluster.
Some analysts note that a higher inflation reading out of China may stymie government stimulus plans, which would also hurt demand. In addition, an increase in the flow of Oil from storage in Cushing, Oklahoma to the Gulf Coast is expected to elevate some of the storage issues at the delivery point for the NYMEX Oil contract. This may cause the Brent vs. WTI spread to contract from historic levels.
Longer-term increased Oil production in the U.S. may change the Oil market landscape, as the U.S. becomes more self-sufficient in meeting its energy needs from Oil. OPEC producers may need to depend more heavily on the increased appetite for Oil from Asia and emerging countries to keep their cash flow from Oil exports flowing at levels needed to support their own economic needs.
? Technical Notes
Looking at the daily chart for March WTI Crude, we notice prices retracing off 3-month highs, though an early session test of the 200-day moving average (“MA”) did trigger some fresh buying.
The 14-day RSI is starting to pull back from overbought levels, with a current reading of 63.99. Near-term support is seen at the 200-day MA, currently near the 93.14 price area. Should this level fail to hold, a move towards the 91.50 to 91.25 price level would not be out of the question. Resistance is seen at this past Thursday’s high of 95.16.
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