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US crude oil stocks fall by 1.3 million barrels

 

Pipelines and oil storage tanks in Cushing, Okla.

3 ways to play rising oil: Gartman   

U.S. crude stocks fell unexpectedly last week as imports declined and refinery runs rose, while gasoline and distillate inventories also drew, industry group the American Petroleum Institute said Tuesday.

Crude inventories fell by 1.3 million barrels in the week to April 7 to 532.4 million, compared with analysts’ expectations for an increase of 87,000 barrels. Crude stocks at the Cushing, Oklahoma, delivery hub rose by 358,000 barrels, API said.

Refinery crude runs rose by 57,000 barrels per day, API data showed.

Gasoline stocks fell by 3.7 million barrels, compared with analysts’ expectations in a Reuters poll for a 1.7 million-barrel decline.

Distillate fuels stockpiles, which include diesel and heating oil, fell by 1.6 million barrels, compared with expectations for a 885,000-barrel drop, the API data showed.

U.S. crude imports fell last week by 15,000 barrels per day to 7.8 million bpd.

Crude Oil Prices Extend Gains as G7 Grapples with Syria Crisis

Apr 11, 2017

Fundamental analysis, economic and market themes

Crude oil prices continued to push upward as US Secretary of State Rex Tillerson took a tougher line on the conflict in Syria at a meeting with his G7 counterparts. He said the US will “[hold] to account any and all who commit crimes against the innocents,” stoking fears of a deepening crisis that may disrupt supply flow.

The sit-down extends for another day and traders will probably continue to monitor emerging commentary with great interest. Tillerson travels to Russia immediately thereafter and worries about the outcome of a diplomatic showdown may keep prices elevated.

Meanwhile, gold prices marked time as Fed Chair Janet Yellen carefully side-stepped opportunities to dislodge status-quo policy expectations in a closely-watched speech at the University of Michigan. From here, a lull in top-tier economic event risk puts geopolitics front and center.

The yellow metal rallied as risk aversion swept the markets after last week’s surprise US missile strike on Syria, threatening Fed rate hike prospects. Signs of deepening crisis may weigh on sentiment anew, making for more of the same. Needless to say, de-escalation may put this dynamic into reverse.

What will drive crude oil and gold prices in the next 3 months? See our forecasts to find out!

GOLD TECHNICAL ANALYSISGold prices remain locked in a range below trend-defining resistance in the 1263.87-65.66 area (February swing high, trend line, 50% Fibonacci expansion). Negative RSI divergence hints that upside momentum is ebbing and a turn lower may be ahead. A break below the 1241.20-49.01 region (range floor, 38.2% Fib) exposes 1218.90, an inflection point in play since mid-January. Alternatively, a move above resistance targets the 61.8% level at 1282.31.

Crude Oil Prices Extend Gains as G7 Grapples with Syria Crisis

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSISCrude oil prices continued to push higher as expected having cleared resistance at 52.04, the 38.2%Fibonacci expansion. From here, a daily close abovethe 50% levelat 53.57 targets the 55.10-21 area (January 3 high, 61.8% Fib). Alternatively, a reversal back below 50.04 exposes the 23.6% expansion at 50.14 anew.

Crude Oil Prices Extend Gains as G7 Grapples with Syria Crisis

Chart created using TradingView

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

U.S. Crude Oil

NASDAQ

UPDATE 10-Oil rises, near 1-month high; U.S. crude stocks seen down


* Brent, U.S. crude at highest since March 7
    * UK North Sea Buzzard field temporarily halted
    * Market watching for signs of tighter supply
    * U.S. crude stocks fell by 1.8 million barrels last week:
API

 (Adds U.S. inventory report in paragraph 7)
    By Scott DiSavino NEW YORK, April 4 (Reuters) - Oil prices on Tuesday rose to
a near one-month high, supported by an unplanned production
outage in the North Sea and expectations of a drawdown in U.S.
crude and product inventories.
    Brent <LCOc1> futures rose $1.05, or 2 percent to settle at
$54.17 a barrel. The move higher came after the global benchmark
broke above its 100-day moving average, a key resistance level,
putting the contract into technically overbought territory for
the first time since the end of December.
    U.S. West Texas Intermediate crude <CLc1>, meanwhile, gained
79 cents, or 1.6 percent, to settle at $51.03 per barrel.
    Both contracts ended the day at their highest levels since
March 7. They hit four-month lows late last month but have
recovered 9 percent since then on expectations the Organization
of the Petroleum Exporting Countries (OPEC) and other producers
would cut output under an agreement reached last year.
    "OPEC compliance is still holding better than we expected
with next week's release of various monthly agency reports
likely to confirm," Jim Ritterbusch, president of Chicago-based
energy advisory firm Ritterbusch & Associates, said in a note.
    In the North Sea, production of crude oil from Britain's
180,000 barrel per day Buzzard field was temporarily halted
while repair work is carried out at an onshore processing
terminal, trading sources said, noting normal output should be
restored in the coming day or two. [nL5N1HC3ZC]
    Meanwhile, U.S. crude stocks fell by more than expected last
week, dropping by 1.8 million barrels compared with analysts'
expectations of a 435,000 barrel decline, according to data
released late Tuesday from the American Petroleum Institute.
[API/S] [nZXN04ZI00]
    The U.S. Energy Information Administration will issue its
inventory figures on Wednesday at 10:30 a.m. EDT.
    "U.S. product stocks need to be watched closely, since they
have fallen massively over the last few weeks," said Carsten
Fritsch, commodities analyst at Commerzbank in Frankfurt.
    Yet global inventories remain high. UBS analyst Giovanni
Staunovo said OPEC was taking longer than expected to tighten
the oil market but recent data suggested the process was now
well under way.
    "We believe the implemented production cuts will trigger a
material drawdown in OECD oil inventories and thus higher crude
oil prices," Staunovo said, referring to the Organisation for
Economic Co-operation and Development.
    "We expect Brent oil prices to rise above $60 a barrel in
three months," Staunovo said.

 (Additional reporting by Christopher Johnson in London and Jane
Chung in Seoul; Editing by Marguerita Choy; Editing by David
Gregorio and Andrew Hay)

Read more: http://www.nasdaq.com/article/update-10oil-rises-near-1month-high-us-crude-stocks-seen-down-20170404-01253#ixzz4dMDoH0Y1

Oil rallies to 3-week high as traders cheer U.S. supply data

MARKET WATCH

Bloomberg News/Landov
A crude oil storage tank at Cushing storage terminal in Cushing, Oklahoma
By

MyraP. Saefong

Markets/commodities reporter

SaraSjolin

Markets reporter

Oil prices rallied Wednesday, settling at their highest level in roughly three weeks after data from the Energy Information Administration showed a weekly rise in U.S. crude inventories that was below some market forecasts, along with bigger-than-expected declines in gasoline and distillate stockpiles.

Disruptions to crude output in Libya, as well as hopes for a six-month extension to the production cut agreement, led by the Organization of the Petroleum Exporting Countries, added further support to oil prices.

Combined, the upbeat factors “offered the market a touch of optimism that perhaps things are headed in the right direction for global balance,” said Jenna Delaney, senior oil analyst at Platts Analytics, a unit of S&P Global Platts.

May West Texas Intermediate crude CLK7, +0.71%  rose $1.14, or 2.4%, to settle at $49.51 a barrel on the New York Mercantile Exchange. The contract settled at its highest level since March 9, according to FactSet data. May Brent LCOK7, +0.17%  gained $1.09, or 2.1%, to $52.42 a barrel.

The EIA reported that crude inventories rose by 900,000 barrels to a weekly record 534 million barrels for the week ended March 24. But that rise was less than half the 1.9 million-barrel climb posted by the American Petroleum Institute late Tuesday.

Analysts polled by S&P Global Platts forecast a climb of 300,000 barrels, while others expected an even larger increase, with Citi Futures forecasting a 2 million- to 3 million-barrel rise.

“An extremely big jump in refinery activity on the Gulf Coast, a tick lower in imports and a rebound in exports has led to a lower-than expected-build to crude inventories,” said Matt Smith, director of commodity research at ClipperData. But that’s “an increase nonetheless—lifting oil inventories to a further new record.”

Still, Phil Flynn, senior market analyst at Price Futures Group, pointed out that supplies in the Strategic Petroleum Reserve fell by more than 700,000 barrels and “if you add that to commercial-oil inventories, the increase in supply looks smaller.”

The EIA also said gasoline supplies dropped 3.7 million barrels, while distillate stockpiles fell 2.5 million barrels last week. The Platts survey forecast a fall of 2.1 million for gasoline and decline of 1.1 million for distillates.

On Nymex, April gasoline RBJ7, +0.53%  rose 3.7 cents, or 2.3%, to $1.672 a gallon, while heating oil for the same month HOJ7, +0.51%  gained 2.6 cents, or 1.7%, to $1.543 a gallon.The feud between Iran and Saudi Arabia intensified at the start of last year, but the two nations have since made moves to bridge their longstanding divide.

Elsewhere in energy trading, natural gas for April US:NGJ17  ended at $3.175 per million British thermal units, up 7.9 cents, or 2.6%. The contract expired at the day’s settlement.

The EIA will issue its weekly update on U.S. natural-gas supplies Thursday, with an S&P Global Platts survey of analysts forecasting a decline of 43 billion cubic feet.

Daily FX

Crude Oil Price Forecast: Oil To 200DMA On Libya’s Force Majure Claim

Crude Oil has shown volatility on Tuesday afternoon ahead of the DoE data on news that Libya’s largest Oil field confirmed Force Major and will bring production in Libya down to 560,000 barrel a day from its previous range of 700-800k. The closed pipeline accounts for ~20% of Libya’s output, and early reports are blaming fighting between armed forces as the reason for closure, but there has not been confirmation. The welcomed news will contend with Wednesday’s US production data, which is expected to further add to the fear that oversupply will weaken OPEC’s efforts.

On the charts, the technical focus has solely been on the 200-DMA, which has historically been a key divisor of the market between Bullish and Bearishness. The 200-DMA currently sits at $48.62/bbl as of Tuesday afternoon and price looks set to push lower.

Are commodity prices matching DailyFX forecasts so far in 2017? Find out here!

Crude Oil Price Forecast: Oil To 200DMA On Libya’s Force Majure ClaimChart created using TradingView

The price action in late March has looked like consolidation, but one concern worth mentioning is the strong bounce in RSI(5). The bounce in RSI(5) looks corrective, which favors a trend continuation move lower and possibly to the $44/40 zone in the coming weeks if further weakness surfaces.

The price zone in focus if we continue under the 200-DMA encompassing the 38.2-50% retracement of the February-January price range that also houses the November low and the Median Line of Andrew’s Pitchfork drawn off the key pivots in mid-2015 through February. The zone is $44/$40.57. Naturally, a break back above the 200-DMA that aligns with USD-weakness (CL1 to DXY 20-day correlation is -.256) would help turn the focus higher toward the $55/57 zone.

Interested in Joining Our Analysts, Instructors, or Strategists For a Free Webinar? Register Here

The price of Crude Oil recently traded below the 200-DMA with RSI(5) registering a bearish extreme. If the price pops higher as it did in April, August, and November of last year, the Bulls may feel as though they have dodged a bullet. However, the Crude Oil market does not have the fundamental support that other commodity sectors like base metals have, which could lead to an eventual breakdown toward the November low of $43.75/42.25.

Wednesday’s US Production data, which recently showed stockpiles at record highs will continue to stoke worries about increasing oversupply alongside a lack of buying pressure. When combining those two components alongside sentiment, it’s my preference to favor a further drop in Crude Prices or at least a further drift sideways as the forwards curve show.

CrudeSentiment Shows Retail Bulls Holding On To Longs In Hope Of A Reversal

Crude Oil Price Forecast: Oil To 200DMA On Libya’s Force Majure ClaimIG Crude Oil retail trader data shows 74.4% of traders are net-long with the ratio of traders long to short at 2.9 to 1. In fact, traders have remained net-long since Mar 01 when Oil – US Crude traded near 5433.1; theprice has moved 11.0% lower since then.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Oil – US Crude prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil – US Crude-bearish contrarian trading bias. (Emphasis Mine)

Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

Key LevelsOver the Next 48-hrs of Trading as ofTuesday, March 28, 2017

Crude Oil Price Forecast: Oil To 200DMA On Libya’s Force Majure ClaimFor those interested in shorter-term levels of focus than the ones above, these levels signal important potential pivot levels over the next 48-hours of trading.

Contact and follow Tyler on Twitter: @ForexYell

Oil ends lower as April contracts expire ahead of U.S. crude-supply data

MARKET WATCH

Trades look for hints on potential for OPEC output cut extension

Shutterstock/zhengzaishuru

By

MyraP. Saefong

Markets/commodities reporter

RachelKoning Beals

News editor

Oil prices settled lower Tuesday in volatile trading tied to the expiration of the April futures contracts, ahead of data expected to reveal a rise in weekly U.S. crude supplies.

Traders also kept an eye out for hints on whether the Organization of the Petroleum Exporting Countries will extend the production-cut agreement between its members and other major producers beyond June. OPEC sources have indicated that members increasingly favor an extension but want the backing of non-OPEC oil producers, which have yet to deliver fully on existing cuts.

April West Texas Intermediate crude CLJ7, -1.49% declined by 88 cents, or 1.8%, to settle at $47.34 a barrel on the New York Mercantile Exchange. The contract, which expired at the settlement, finish at their lowest level since November, according to FactSet data. May WTI CLK7, -0.58% which is now the front-month contract, shed 67 cents, or 1.4%, to finish at $48.24 a barrel.

May Brent crude LCOK7, -0.51% lost 66 cents, or 1.3%, to $50.96 a barrel on the ICE Futures exchange in London.

“WTI crude oil was unable to hold on to early gains despite a falling U.S. dollar providing support to commodity prices in general,” Colin Cieszynski, chief market strategist at CMC Markets, told MarketWatch.

“Given the high volatility and big surprises in both directions of the last three weeks, it appears some traders may be going to the sidelines ahead of the [supply data] news, while others may be expecting a big build after last week’s surprise decline,” he said.

Petroleum inventory data are due out from the American Petroleum Institute late Tuesday and Energy Information Administration early Wednesday. Analysts surveyed by S&P Global Platts forecast a climb of 2 million barrels in crude inventories for the week ended March 17.

“A lot of the recent volatility in oil has been around traders trying to figure out if the big build we saw in U.S. inventories in the winter is over or not,” said Cieszynski. EIA data released last week showed the first decline in crude stockpiles in 10 weeks.

The world’s biggest crude exporter is conceding ground to shale producers in the U.S., people familiar with current Saudi policy said. Saudi Arabia’s crude exports to the U.S. for the week ended March 10 fell by 426,000 barrels a day compared with the previous week, according to U.S. data.

Elsewhere in energy trading, April gasoline RBJ7, -0.28%  fell by 0.4% to $1.605 a gallon, while April heating oil HOJ7, -0.39%  lost 0.7% to $1.503 a gallon.

April natural gas NGJ17, -0.32%  settled at $3.093 per million British thermal units, up 1.7%.

US crude oil up 2.4%

US crude settles at $48.86, up 2.4% on stockpile drop, snapping 7-session losing streak

Futures Now: Crude oil breaks losing streak

Futures Now: Crude oil breaks losing streak   

Oil prices rose more than 2 percent Wednesday, lifted by a surprise drawdown in U.S. crude inventories and data from the International Energy Agency (IEA) suggesting OPEC cuts should create a crude deficit in the first half of 2017.

Data from the U.S. Energy Information Administration (EIA) showed U.S. crude stocks fell last week, dropping after nine consecutive increases.

Inventories fell by 237,000 barrels in the week to March 10, compared with analysts’ expectations for an increase of 3.7 million barrels.

The IEA said global inventories rose in January for the first time in six months despite OPEC output cuts, but said if it stuck to its production curbs the market should see a deficit of 500,000 barrels per day (bpd) in the first half.

“For those looking for a rebalancing of the oil market the message is that they should be patient, and hold their nerve,” the IEA said in its monthly report.

Futures Now: Crude oil breaks losing streak

Futures Now: Crude oil breaks losing streak   

U.S. West Texas Intermediate crude ended Wednesday’s trade up $1.14, or 2.4 percent, at $48.86, snapping a seven-session losing streak.

Brent futures were up 83 cents, or 1.6 percent, at $51.75 a barrel by 2:39 p.m. ET (1839 GMT). Prices had hit a three-month low of $50.25 during the previous day’s trading.

Prices extended gains after the U.S. Federal Reserve raised interest rates in a widely anticipated move that sent the dollar index lower. A weaker greenback makes dollar-denominated crude oil more affordable to holders of other currencies.

EIA also reported gasoline stocks fell by 3.1 million barrels, compared with analysts’ expectations in a Reuters poll for a 2 million-barrel drop. Distillate stockpiles, which include diesel and heating oil, were down 4.2 million barrels, versus expectations for a 1.7 million-barrel drop.

Earlier, the IEA reported global inventories rising in January for the first time in six months despite OPEC cuts since Jan. 1, but said if OPEC stuck to limits the market should see a deficit of 500,000 barrels per day (bpd) in the first half of 2017.

“As long as OPEC stays on track and non-OPEC delivers on their agreed cuts, the market will continue to balance,” said Ole Hansen, head of commodity strategy at Saxo Bank.

The Organization of the Petroleum Exporting Countries said at the end of November it would cut 1.2 million bpd during the first half of 2017, and then in December reached a deal with non-OPEC producers to cut about 600,000 bpd from their output.

Matt Smith: US inventory at record highs

Matt Smith: US oil inventories at record highs   

Despite OPEC compliance with its share of the cuts, stockpiles have continued to rise, in part because OPEC members pumped heavily before cuts kicked in and also because U.S. shale producers have raised output as Brent spiked above $58 in January.

Last week, prices plummeted more than 5 percent, the biggest drop in a year, as U.S. crude inventories surged much more than expected to a record high.

“While such patience (counseled by the IEA) may indeed benefit longer-term investors it may not be much help for money managers facing year-to-date losses on long positions, whether longer-term holdings benchmarked to the December 30 Brent closing price of $56.82 or purchased over the long period of range trading over the first ten weeks of the year,” Tim Evans, Citi Futures’ energy futures specialist, said in a note.

“Surplus inventories and rising U.S. production may be more of a worry to them.”

On Tuesday, prices had been hit hard by an OPEC report showing a rise in global crude stocks and a surprise output jump from OPEC’s biggest member, Saudi Arabia.

Secondary sources had said Saudi output fell in February to 9.797 million barrels per day (bpd), but Riyadh told OPEC it rose to 10.011 million bpd.

Saudi Arabia played down the figures, saying its supplies to the markers were effectively stable during January and February.

— CNBC’s Tom DiChristopher contributed to this report.

Oil Bulls Blink After Months of Attempts to Boost Crude Prices


FILE - An oil storage tank and crude oil pipeline equipment is seen at the Strategic Petroleum Reserve in Freeport, Texas, U.S., June 9, 2016.

FILE – An oil storage tank and crude oil pipeline equipment is seen at the Strategic Petroleum Reserve in Freeport, Texas, U.S., June 9, 2016.

Oil bulls trying to push the crude market higher finally waved the white flag Wednesday, triggering the biggest rout in a year on concerns that stubbornly high inventory levels would persist despite supply cuts.

Prices had been locked in the tightest trading range in over a decade as traders and speculators piled into bets that oil prices would rise after the world’s top producers cut output.

For weeks, they shrugged off record high inventories in the United States until Wednesday, when the market finally blinked.

Global oil benchmark, Brent and U.S. crude’s West Texas Intermediate prices plunged more than 5 percent — the biggest drop since February 2016 — an unwelcome reminder of the darkest days of a two-year price war that left many U.S. shale producers with beleaguered balance sheets.

The move also lifted trading volumes to the highest since early December, with over 430,000 contracts in Brent crude for May delivery and more than 911,000 contracts of WTI for delivery in April changing hands.

The selloff continued Thursday, as U.S. crude hit a low of $48.79 a barrel in early trading, its first drop below $50 all year, while Brent crude touched a low of $51.60 a barrel, its lowest since Dec. 1.

Industry players were divided on whether the price slide would continue or be short lived, given producers’ adherence to a pledge to rein in output and prop up prices that have languished for over two years owing to a glut.

“The high level of uncertainty that has kept the oil complex trading in a relatively narrow trading range since late last year has been replaced, at least for the moment, by a bearish market sentiment,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

“The discussion will now center around whether or not Saudi Arabia is willing to give back market share to U.S. producers … or are they ready for yet another round of the market share war.”

So far, there has been no indication that Saudi and OPEC would extend the cuts beyond what is announced or allow the U.S. to claw some of its market share.

Suhail bin Mohammed al-Mazrouei, energy minister for the United Arab Emirates, told Reuters on the sidelines of an industry conference in Houston that the plunge in oil prices was temporary and prices would rise as OPEC complies with output cuts.

Still, the rise in inventories was “a worry,” he admitted.

Despite record exports in U.S. crude oil, inventories have ballooned to a new high week after week, threatening a speedy rebalancing of the market.

Saudi Oil Minister Khalid al-Falih even admitted on Tuesday inventory drawdowns were taking longer than he had expected for the first two months of the year.

The crash Wednesday also tested key technical levels of support established this year and dropped below their 100-day moving averages — a key metric for chart watchers — for the first time since the OPEC deal was announced.

“The move down is in oversold territory, but otherwise, there is very little evidence that it will end,” Dean Rogers, senior analyst at Kase & Company, said of WTI.

A small upward correction might take place first, but odds strongly favor a continued decline toward the next major target at $48, he said, adding that for Brent, the move lower is poised to continue to at least $52.60 and likely $51.60 and lower over the next few days.

Still, for the long term, most market participants continue to remain bullish.

Trade in options — that give the holder the right to buy or sell at a specific price — signaled that the market does not expect prices to move much lower than current levels.

“Their [OPEC’s] response may very well be a continuation of cooperation to limit their oil production, perhaps for a little longer than they had hoped and this should help keep a floor under oil prices,” said Fawad Razaqzada, technical analyst at forex.com.

“Indeed, despite today’s sharp selloff, I remain bullish on oil and still expect to see $60-$70 a barrel by the year end.”

US oil price plunges toward $50

Market alert: US oil price plunges toward $50 as a perfect storm brews

Workers connect drill bits and drill collars, used to extract natural petroleum, on Endeavor Energy Resources' Big Dog Drilling Rig 22 in the Permian basin outside of Midland, Texas.

Futures Now: Crude oil hits 1-month low   

Oil is on track to break through the key psychological level of $50 a barrel after a ninth straight rise in U.S. crude stockpiles came at exactly the wrong moment, analysts said Wednesday.

The amount of crude oil in U.S. storage rose to another record high on Wednesday, jumping 8.2 million barrels from the previous week, the Energy Information Administration reported. The increase was more than four times what analysts expected.

Weekly figures also showed U.S. oil production continuing to tick up toward 9.1 million barrels a day, the highest level in more than a year. That provided further evidence that rising American output is confounding efforts by the Organization of the Petroleum Exporting Countries, Russia and 10 other exporters to reduce global oil inventories by curbing their own output.

“It’s really been like a kettle boiling for the last few weeks in terms of having traded in a very tight range. There’s been this pressure building from a technical perspective.” -Matt Smith, director of commodity research, ClipperData

The data sent U.S. benchmark West Texas Intermediate crude prices plunging more than 5 percent to a nearly three-month low.

The plunge through a number of lows on Wednesday puts oil on a path to test the December low of $49.95 a barrel, said John Kilduff, founding partner at energy hedge fund Again Capital.

“From there you could accelerate,” he told CNBC, adding that $50 “was the fail-safe.” Kilduff’s downside target, once oil breaks below $50 a barrel, is $42.

For the last three months, oil has traded in a range between $49.61 and $55.24.

According to Kilduff, all the elements are in place for oil to break below its three-month range: lack of cohesion among OPEC members, bearish statements from oil ministers at CERAWeek conference by IHS Markit and subdued refinery activity as operators perform seasonal maintenance in the United States.

Bearish OPEC comments at CERAWeek

On Tuesday, Saudi Oil Minister Khalid al-Falih warned at CERAWeek that the kingdom would only support OPEC’s intervention in markets for a “restricted period of time” and would not “underwrite the investments of others at our own expense and long-term interests.”

Later that evening, oil ministers convened a last-minute press briefing, where they reaffirmed their commitment to the production cut deal.

“The Saudis almost explicitly warned that if we don’t get cooperation or we see cheating we’re not going to be someone’s patsy forever,” said Tom Kloza, global head of energy analysis at Oil Price Information Service.

Saudi Arabia has so far provided the lion’s share of output cuts as OPEC and other producers seek to remove 1.8 million barrels from the market in the first six months of 2016. Iraq, OPEC’s second largest producer, produced above its quota in January.

Saudi energy minister: We have been bearing a significant part of the load of OPEC cut

Saudi energy minister: We have been bearing a significant part of the load of OPEC cut   

Also at CERAWeek on Tuesday, Iraqi Minister of Oil Jabbar Ali Al-Luiebi said Baghdad could increase its output capacity to 5 million barrels a day by the second half of 2017, raising concerns about its commitments to production cuts.

Andy Lipow, president of Lipow Oil Associates, said $50 can now be considered a target. If oil prices break that level, market watchers can expect more talk from oil ministers about extending the OPEC agreement another six months when producers meet in May, he added.

“I think that OPEC is hoping they can wait it out so they don’t have to make a decision in May to continue with production cuts, but they may be forced into that decision given the high inventories here in the U.S.,” he said.

Those inventory builds are likely to continue through the refinery maintenance season, according to Lipow.

Kettle finally boils over

Further fueling the fall to $50 a barrel is the record number of bets traders have recently made on crude rising further, said Matt Smith, director of commodity research at shipment tracking firm ClipperData. As oil prices fall to the bottom of their range, more traders will look to unwind those positions, he explained.

“It’s really been like a kettle boiling for the last few weeks in terms of having traded in a very tight range. There’s been this pressure building form a technical perspective,” he said. “As that happens, as that pressure builds, we tend to pop violently.”

OPEC Secretary General Mohammed Barkindo (R)

OPEC secretary general on production cuts   

Kloza also sees the anniversary of crude oil storage leases playing into the problem.

Many traders took out one-year leases around this time in 2016, when crude prices were near the lows of the downturn, he explained. Now that the oil price curve is flattening — meaning prices for future crude deliveries are declining relative to current costs — traders have little incentive to sign another one-year lease. Instead they’re selling that oil into an oversupplied market.

While the next 30 days provide an environment ripe for a drop below $50 a barrel, Kloza said, he doesn’t see an “apocalyptic move lower.”

“We may break below that range for about 90 days, but in the end I think we’ll be above it come driving season,” he said. “From now through let’s say May, it may be stormy times,” he said.

Op-Ed: US crude oil testing resistance

An oil pump jack in the oil town of Gonzales, Texas.
Getty Images
An oil pump jack in the oil town of Gonzales, Texas.

U.S. crude oil seems to be going nowhere but the weekly New York mercantile Exchange l chart for West Texas Intermediate tells a different story. The chart shows consistent bullish behaviour even though price has developed a temporary resistance level near $54. The sideways movement that has been in place since 2017 January has lulled some observers into a false sense of security when it comes to the potential for further increases in the oil price.

The weekly NYMEX Oil chart shows a long term inverted head and shoulder reversal pattern. This trend reversal pattern is reliable and has a high probability of reaching the projected price breakout targets.

This is a long-term trend reversal pattern that started in mid-2015 and which was confirmed towards the end of 2016. It is best seen on the weekly price chart.

The head and shoulders are shown with the curved lines. The sustained sideways move above $50 in the current uptrend confirms the inverted head and shoulder pattern and the continuation of the slow uptrend.

The depth of the head and shoulder pattern between the neckline and the head is measured and the value projected upwards. This gives a long term upside target near $68. This target is verified using the second chart feature that sets the character of the NYMEX oil chart.

The second feature is the historical pattern of support and resistance levels. The rebound from support near $48 is part of this pattern behavior. Resistance is near $58. A breakout above this level gives a medium term target near $68.

The historical resistance level near $58 is the most significant resistance level for any trend change. The level was broken in 2015 June but the breakout was overwhelmed by the wide separation in the long term Guppy Multiple Moving Average. This is not the situation today. Now the long term GMMA is acting as a support level and the move towards $58 is slow and steady.

The long term GMMA provides an indication of the way investors are thinking. The steady separation of the long term group of averages shows confident support for the new uptrend.

The short term group of averages provides an indication of the way traders are thinking. The consistent steady separation confirms strong confidence in the trend strength. Any pullback in price is taken as a buying opportunity. This is shown by the lack of compression in the short term GMMA when prices pull back.

The successful breakout above $48 is moving slowly to the historical resistance level near $58. This offers short term trading opportunities which can be exploited using the ANTSSYS method to trade the consolidation behavior. The breakout above $58 has a resistance target near $68 and this helps validate the head and shoulder price projection target.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.

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