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Recent News | WTI Hits Our Forecast Target $76.47, Where to Next?

West Texas Intermediate (WTI) ($76.37)

Technical Outlook

West Texas Intermediate reached the $76.47 target cited in our January 2018 and March 3, 2018 forecast today with an intraday high of $77.06 and closed today at $76.37. This level found bids in 2011-2012 when prices ranged $74.95-112.56 for several months before a downside break of this $75 level in Nov 2014. Look for offers to initially limit the upside as witnessed during the first week of July 2018 when prices reached $75.37.  However, after testing offers at $75 last July, prices eventually moved lower to challenge bids at $64.58 which is just a few cents above the 200-month simple moving average. As to the upside, look for daily prices to open above $77.06 and close higher followed by a weekly open and higher close above $77.06 to confirm further price rise is once again under with $88.67 as the next upside target. As to the downside, $57.46 remains as key mathematical support while the recent $77.06 limits the upside.  A daily open and lower close below $57.46 followed by a weekly open and lower close will complete the rise from the Feb 2016 low of $25.75 at $77.06 with further price decline to test bids at $51.41. The more probable outlook with a 77% probability will be 51.41 bids will eventually witness a sustained break of $77.06 for $88.67 target. Above this 88.67 level will witness a 93% probability of prices continuing higher to $105-108 in the months ahead.  More on that outlook later as this scenario unfolds.

Fundamental Outlook

Global demand by rapidly developing and technology-driven expanding emerging economies is the primary reason for sustained oil prices as this coupled with global production currently at 92% of capacity will continue to witness rising prices into the months ahead.  The vast majority of the world economies are emerging as opposed to the advanced economies such as USA, Canada, Japan, France,  UK, Germany, Italy,   These emerging economies have average growth in Gross Domestic Product (GDP) of 6% per year for the last five years with the top emerging economies averaging over 10-15% per year since 2013. (GDP is the total goods and services produced by an economy in a monetary measure.) And all these economies need oil and the three largest producers of oil in the world are the United States, Saudi Arabia, and Russia. Current global consumption is approximately 100 million barrels per day with current global output essentially the same. Consumption Forecast for 2019 is 104 million barrels per day and the current maximum capable production of oil in the world from all sources at 100% utilization is approximately 107 million barrels a day. Do the math, the world is nearing a global energy shortage. Oil is used to run the power plants which produce most of the world’s electricity. The world is on a razor-thin margin between surplus and deficit. Unlike the great wealth transfers from the oil booms of the 1970’s. 1980’s and 1990’s where the middle east was the beneficiary, this time it will be the United States and it’s oil producers and partners.

Ronald Welch, Research Analyst

ron.welch@vipercapitalpartners.com