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WTI Moves Above 200 Month Moving Average, First Time Since Feb 2009

Oil prices have remained firm for all of 2018 as seasonal increasing demand will continue to witness higher prices into late summer 2018.  However, long-term global demand, especially that from developing emerging economies, will continue to pressure global supplies and keep oil prices firm in the years ahead. Emerging economies are witnessing annual growth rates from 6-16% annually and expected to sustain this growth rate through 2030. Global oil production is at 93% capacity utilization, so, unless global production capabilities improve at a much faster rate, then from a mathematical perspective it is a certainty that demand will exceed supply by 2025 and certainly within the next 10 years.

From a technical perspective, West Texas Intermediate (WTI) is finding bids above the 200-month moving average currently at 65.61. Since moving above this key long-term indicator a few days ago, there have been 7 days where prices have opened above and closed higher followed by a weekly open and higher close above 65.61. The next pivotal confirmation to support further rise will be a monthly open above 65.61 and higher close.  It appears May 2018 could meet these criteria as the last time such a trifecta occurred was Feb 2009 when prices sustained above the 200 month moving average and eventually rallied from 33.55 to 114.79 by May 2012.

However, there is one component missing during 2009-2012 multi-year period of sustained rise in prices which is present at this time, and that is the unprecedented rapid growth and subsequent demand from emerging economies.

Global daily oil consumption is now approaching 100 million barrels a day, which is just about the same as total global daily production, so, the risk for global shortfall in supply is very high. Adding the further potential for global oil shortage would be any geopolitical event or natural disaster which could easily see prices spike to $100 a barrel in a few days.

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