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Crude Oil Moves Higher on IEA Global Deficit Warning

Crude oil moved higher on Wednesday after the US weekly crude oil inventories report came in worse than expected with a -2.6 million barrel in inventories from last week, maintaining a draw down in inventories for 2018 and 45 million barrel draw down last 6 months. Other factors cited as motivation for traders to bid crude oil futures contracts are record gasoline demand, falling Venezuelan production and rising tensions between Iran and Saudi Arabia.

Iranian backed rebels in Yemen continue to show little regard for civilian casualties in what the United Nations is calling “the worst man-made humanitarian crisis of our time.” The war has had many atrocities and the players have broken down into multiple factions.

Trump will push the Saudi Crown Prince to try to find a way to end the conflict, yet at the same time work together to push back on Iran’s nuclear ambitions and crack down on their involvement in the war in Syria. Saudi Crown Prince Mohammed bin Salman said that Saudi Arabia would develop nuclear weapons if Iran persists with it’s nuclear weapons development.

From a technical perspective, West Texas Light Crude trades within a consolidating wedge formation with a series of daily lower highs and daily higher lows with a break out imminent.  To the upside, look for a daily open and higher close above $64 to support further rise to the 2018 high of $66.63 with a sustained move above this level targeting 68.65, 69.91 and 71.93 into the days ahead.

crude oil futures chart

Earth globe

International Energy Agency Warns of World Oil Deficit

Crude oil prices have remained firm this week despite Wednesday’s U.S. Energy Information Administration’s (EIA) weekly report on the change in the number of barrels of crude oil held in inventory by commercial firms during the past week coming in at +5.0 million barrel surplus.

U.S. oil output hit a record last week rising to 10.38 million bpd according to the Energy Information Administration. However, for the year inventories still remain in draw down and last 6 months a -42 million barrel draw down in inventories.

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Also this week, the International Energy Agency (IEA) issued a stern warning that oil demand could outstrip supply despite the ramp up in recent shale output. IEA stated in its monthly report “With supply from Venezuela clearly vulnerable to an accelerated decline, without any compensatory change from other producers, it is possible that the Latin American country could be the final element that tips the market decisively into deficit.” U.S. Venezuelan sanctions and political unrest has driven capital investment away from Venezuela and specifically the countries oil industry.

IEA also revised higher its estimate of daily global oil demand growth in 2018 to 1.5 million barrels per day (bpd) which brings the total global daily oil demand nearing 100 million barrels per day with forecast exceeding this number within the next 12 months.

The recent increase in U.S. output is viewed as one of the headwinds for oil prices, though continued emerging market demand fueled by unprecedented emerging market growth will likely keep oil prices firm into the months ahead as the northern hemisphere moves into high demand season. Long-term forecast views a steady rise in global oil demand well into the mid 21st century.

man pumping gas

March 7 Weekly Crude Oil Inventories

This week’s Energy Information Administration (EIA) change in the number of barrels of crude oil held in inventory by commercial firms during the past week rose by 2.4 million barrels, just shy of the 2.6 million barrel forecast. Although last week witnessed a surplus in weekly inventories, for the year 2018 inventories are down by 6 million barrels.

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Crude Oil, West Texas Intermediate (WTI) Technical Outlook and 2018 Forecast

West Texas Intermediate currently trades at 60.30 with the 2018 high at 66.63 and the 2018 low at 58.05.  United States crude oil inventories are down 6 million barrels year to date and down 46.7 million barrels in the last 6 months. Whats troubling is this draw down with inventories continued during the 2017 fall and winter seasonal low demand period.  This clearly sets the stage for continued rise in prices as we move into the 2018 high demand months.

From a technical perspective, WTI is trading within a consolidating pattern with a series of daily lower highs and daily higher lows since the  January 25 2018 high(66.63)  and the February 9, 2018 low (58.05). This consolidating wedge pattern most always follows a strong trending market which in this case, began with the June 2017 low 42.03 and continued until the January 2018 high.

However, while prices remain above the technical level 51.43, look for further rise to the 2018 high 66.63 as a daily open and higher close above 67 will support further rise to 69.91, 71.93 followed by 76.63 and 88.39.  To the downside, a daily open and lower close below 51.43 will support further price decline initially to 45.43.