NEW YORK (MNI) – In response to EIA data showing a more sizable crude stock draw than expected, West Texas Intermediate rose above the psychological $50 per barrel mark Wednesday, but soon ran out of steam.
Despite the crude stock draw, there was scant enthusiasm to hold a crude long position without another catalyst to propel prices higher, analysts said.
A steady rise in crude oil prices was to be one of the key stories of 2017, but so far, a sustained rally has been elusive, they said.
Nevertheless, hopes still remain high for a crude rally in the second half of the year, driven by a global recovery and diminished supply, they said.
In terms of some “good news” for oil prices, EIA data released Wednesday showed a crude stock decline of 3.64 million barrels, to 528.7 million, in the week ending April 21.
This was in contrast to API data, released late Tuesday, which showed a crude stock build of 0.9 million barrels in the latest week.
NYMEX June light sweet crude oil futures were trading up $0.24 at $49.80 per barrel Wednesday afternoon, in the middle of a $48.94 to $50.20 range.
On Tuesday, WTI bottomed at $48.87, the lowest level since March 29, when crude troughed at $48.38.
The 200-day moving average comes in currently at $48.93 and may continue to act as support for crude. West Texas Intermediate has traded above its 200-day moving average since late March.
The April 12 WTI high of $53.76 was the highest since March 7, when crude peaked at $53.80. The WTI range for 2017 has been $47.01, seen March 22, to $55.24, seen Jan. 3.
A look at the WTI chart shows resistance in the form of a triple top, at $53.80, seen March 2 and March 7, and $53.76, from April 12.
On the downside, there is triple bottom support at $47.09, $47.01, and $47.08, the lows from March 14, March 22 and March 27.
These parameters will likely contain crude prices in the near-term, analysts said.
The 38.2% Fibonacci retracement of the decline from the April 12 high to this week’s low, i.e. from $53.76 to $48.87, comes in at $50.74 and will act as resistance beyond the psychological $50 mark.
Going forward, the market will eye soundbites ahead of the annual OPEC meeting taking place May 25 in Vienna, where a six-month extension of OPEC/non-OPEC production cuts will be debated.
At the conclusion of their second meeting on March 26, the Joint OPEC/Non-OPEC Ministerial Monitoring Committee announced that conformity stood at 94% in February to the combined production agreement of around 1.8 million barrels per day.
Last week, addressing agreed-upon OPEC/non-OPEC production cuts, OPEC Secretary General Mohammad Sanusi Barkindo said “conformity to the adjustments stood at 94%” in February, “which was eight percentage points above the January figure — already, in itself, impressive.”
“And the March data is showing an even better performance again, with a higher conformity, underlying our commitment to our common objective,” he said, in a keynote address at the Third GCC Petroleum Media Forum in Abu Dhabi.
Despite adherence to the agreement, the market frets that OPEC members and non-members may be less agreeable to another six months of cuts.
Going forward, the market will continue “to weigh the odds of an OPEC and non-OPEC extension of production limits through the second half of the year,” said Tim Evans, energy futures specialist at Citi Futures and OTC Clearing.
“We continue to view ongoing production restraint as both necessary to maintaining a floor under prices and likely, but OPEC is unlikely to fully ratify that move until their May 25 summit, and Russia may be even slower to commit,” he said.
A rising dollar, increased risk aversion, extended positioning – it has not taken much to put WTI on the defensive these days.
The latest concern has been Saudi Arabia and some high-profile changes in government staffing and a key economy policy reform being reversed.
“Two of King Salman’s sons have been elevated to new positions of prominence with Prince Abdulaziz bin Salman becoming the new Minister of State for Energy and Prince Khaled bin Salman, becoming the new Saudi Ambassador to the U.S.,” said RBC Capital Markets strategists.
“However, the decision to reverse the civil service salary and benefit cuts will likely have the most outsized implications for oil as it will likely necessitate higher prices in order to forestall another blockbuster deficit,” they said.
RBCCM reminded that last September, the Saudi government announced a 20% cut in minister salaries and a sharp reduction in civil service benefits, which was not well received given that two-thirds of Saudi’s work for the state.
The Saudi government decision to reverse these measures “shows the limits to austerity and more importantly, increases the need for higher oil prices,” the strategists said.
RBCCM reiterated their view “that Saudi Arabia will anchor the extension of the OPEC/non-OPEC output agreement next month.”
In addition to OPEC/non-OPEC production cuts, there has also been increased focus on the steady rise in U.S. oil rigs.
Baker Hughes rig count, released last Friday, showed a five rig increase to 688 rigs for U.S. “oil-only” rigs in the week ending April 21. This compared to 343 rigs a year ago. Rigs were down 57.2% from the peak rig count of 1,609 rigs seen Oct. 10, 2014.
U.S. oil production “bottomed in mid-2016 at 8.4mn barrels/day and has since risen to 9.2mn barrels/day, recouping more than half its decline from its 2015 peak (9.6mbd),” noted John Normand, head of FX Commodities and International Rates Research at at JP Morgan.
This “revival in drilling activity and output” reflects more the “stable-to-higher price environment” seen in the past month than a change in domestic policy, he said.
“Where policy intervention has boosted U.S. supply, the catalyst has been external – namely OPEC’s output restraint that has supported prices and thus rendered profitable a greater share of U.S. shale producers,” Normand said.
The New York Times reported Wednesday that in addition to signing an executive order earlier calling for a review of national monument designations, President Donald Trump is expected to sign another executive order Friday regarding changes in off-shore drilling, which would open up “protected waters in the Atlantic and Arctic Oceans to off-shore drilling.”
Friday’s executive order would call for Interior Secretary Ryan Zinke “to revisit an Obama administration plan that would have put those waters off limits to drilling through 2022” and also call for “a limiting of the permanent ban of drilling in an area including many of those same waters,” the NYT said.
In January, in the 2017 State of American Energy Address, American Petroleum Institute President and CEO Jack Gerard said, “Today, roughly 94% of federal offshore acreage is off limits to energy production.”
“Allowing more offshore oil and natural gas production could create more than 800,000 new jobs, grow our economy by up to $70 billion per year and raise more than $200 billion in cumulative revenue for the government treasury.”
By Vicki Schmelzer
–MNI New York Bureau; tel: +1 212-669-6438; email: [email protected]
Source: MNI