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Oil Market: Oil price broke out

Crude Oil Analysis

WTI’s price was rising in the previous days after having a challenging past week and moving to the downside. 

At the moment, the Oil market is affected by various fundamentals simultaneously, and this report aims to identify and overview some of the most important ones that could act as price movers in the following days. 

I will also provide a technical analysis of WTI identifying essential trends and levels. We start first with the weekly economic releases related to the Oil market to help make other trading decisions. They can also help us clarify whether the weekly readings justify the recent price action of the commodity.

 On the 21st of May Friday, the Baker Hughes weekly Oil rig count figure indicated active Oil rigs increased by 4, reaching altogether 356. An increase in Oil rigs is usually an indication of uplifted demand and could motivate Oil traders to push prices higher. A somewhat encouraging and interesting statistic by Baker Hughes is that the active Oil rigs have increased by 119 compared to the same time last year.

 On the 25th of May, the American Petroleum Institute reported its weekly inventory levels of WTI, indicating a minor drawdown of -0.4M barrels even though a more significant drawdown was expected. 

On the 26th of May, the EIA took its turn to release its weekly data, indicating a drawdown of -1.66M barrels more than expected and bigger than the previous drawdown released. 

Overall, the EIA and the Baker Hughes readings tend to support Oil prices, while the figure is relatively neutral regarding the API. Even though the overall picture of the indicators tends to justify the upward movement for WTI, the substantial move higher for the commodity was on the 21st and the 24th of May. 

 

On a separate note, analysts are considering the entrance of Iranian Oil into the market as a threat to the current circumstances, possibly destabilising supply and demand. 

This could also be a headache for the OPEC plus group, which meets on the 1st of June, and as for the group’s plans for easing production cuts, second thoughts may prevail.

 Moreover, in the past days, Russia’s Energy Minister stated Global oil deficit is approximately 1 million barrels per day, possibly cautioning the markets further steps as some uncertainty is still evident. On the contrary, the market seems to be supported by optimism that contradicts oversupply fears. 

The US and Europe are going through a period of low virus cases with the immunity against the virus strengthening as vaccination is carried out systematically. This can help a lot in the following months with the summer kicking in, as tourism is possible to pick up, which could signal more fuel in general. 

In Asia and specifically India, the circumstances could have been better with lockdown measure still being imposed and possibly curbing demand for Oil at this stage. 

In my opinion, however, the situation could be improving faster than initially thought. 

Finally, we would like to emphasise how sensitive the Oil market is to different aspects of the industry and the economy. Traders should be able to receive a balance of fundamental and technicals to make solid trading decisions.

The Oil price broke the near-term resistance level, which for me is more bullish than bearish, at least for short-term action. The next resistance level and a potential target for the price is 68 level. 

If the price gets back in the previous range or below the 66.70 level, I might change my stance, and most probably, I will be looking sells with targets of 65.50

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