The Crude Oil prices are moving to higher grounds

Crude Oil Analysis

I received a lot of question about Oil this week and in today’s article, we will discuss Oil in general. 

As I mentioned in the XM Live trading sessions: I am not expecting “bearish” Oil because of some of the fundamental factors supported by the technicals which we already have discussed live.

Crude oil’s price has managed to break above the $50 barrier in the latest daily sessions, continuing its gradual ascendance that has been going on since the previous months.

 I have several fundamental updates related to the Oil market. Thus we aim to keep it brief and explanatory. 

During the holiday season, the commodity’s price moved higher and seemed to stabilize nearby $50 but could not breach it. 

However, during the first days of the current week, when the OPEC meeting took place, price action was enhanced. Looking into the most important decisions taken by the OPEC plus group, we could derive some valuable conclusions related to the Oil market. 

First, Russia and Kazakhstan will be the only two nations that have been cleared to increase production. According to various sources, the two Oil-rich nations will add a combined 75,000 barrels per day to the market in February and March. 

In my opinion, this is a sign that Russia has been eager to increase production for some time now and maybe opposing fellow OPEC+ superpower, Saudi Arabia’s urge to keep production steady. Of course, Saudi Arabia’s cautioned stance to keep production on the leash stems from the ongoing pandemic that creates many economic expansion barriers in general and globally. 

In my opinion, the current adverse circumstances create uncertainty for the next months regarding the Oil market, as simultaneously contradicting happenings are taking place. 

First, we have stricter lockdown measures in many countries because new virus cases continue to be at very high levels at the moment. In general, Lockdown measures are among the greatest barriers to the Oil market as they tend to reduce Oil usage and demand. 

On the other hand, vaccination is currently spreading worldwide that may change the economic sentiment to the positive, in the next months. This can make people feel safer to travel and restart business activity which is good for the Oil market. 

Viewing this situation and the uncertainty surrounding the next months, formed OPEC’s meeting most important outcome. The more cautious Saudi’s will be cutting production by 1 million barrels per day for February and March, with their own initiative. All other members will keep production constant. Possibly a constrained supply could protect the Oil market in the short term and help it grow. 

This is also another reason why the Oil market has seen a steady recovery with prices gradually increasing. 

On a final note, we turn to the weekly readings related to the Oil market to further understand the two most important strings driving it, demand and supply. 

The Baker Hughes rig count released on the 30th of December indicated a minor increase of active rigs by 3, now totalling 267. As per the active Oil rigs, demand has remained steady and even saw a minor increase.

On the 5th of January, the American Petroleum Institute reported its inventory levels releasing a considerable -1.7M barrel drawdown. 

On the 6th of January, the Energy Information Administration’s weekly Crude Oil Inventories figure came out with the large -8M barrels drawdown. 

In conjunction with increasing active Oil rigs, both drawdowns can be perceived as bullish signs of increased oil demand.

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