On Friday, crude oil jumped and advanced most in a week, by around 1.69 percent to close at $58.131 per barrel, partially erasing last week’s loss. It was the day after OPEC and allies including Russia extended supply caps through the end of next year. This agreement of supply tax likely determines the direction over the next year, what investors liked to hear.
Some of significant crude producers, for example, Libya and Nigeria, came in from the cold for the first time joining in on an accord that previously let them pump at will. Saudi Arabia and Russia agreed to take the lead in nudging other signatories to confirm to the self-imposed output limits.
Saudi Arabia intends to conduct the same level of self discipline in 2018 on oil production as it has this year Khalid Al-Falih, the kingdom’s energy minister, said on Thursday in Vienna. Russian Energy Minister Alexander Novak said the group will meet every two to three months to analyse the impact of the cuts on global supplies.
“OPEC has done a very good job of telegraphing what their actions are going to be. There’s been less uncertainty about the direction of where they are headed,” Mark Watkins, a Park City, Utah-based regional investment manager at U.S. Bank Wealth Management, which oversees $142 billion in assets, said by telephone. “This more than anything helps provide a much firmer floor on the price of oil.”
A big unknown, on the other hand, potentially threatens the outcome of supply cuts. It is that the U.S. production may climb by another million barrels a day before the end of 2018 as a result of the deal extension, according to Barclays Plc. This would be upside risks to crude supplies if prices remain increased.
UBS Group AG also said a further rise in prices would “likely ignite U.S. shale production further given the short lead times.”
Technically WTI (West Texas Intermediate) is developing along with the uptrend price channel, starting from early April, while touching the upper line at the moment, which represents a key resistance to the price. If it breaks higher successfully, further rise may be seen and investors need to be cautious of May 6’s high in 2015 of 61.555, which would be next obstacle for price gain.
Regarding the relative strength index, it is currently in a relatively high reading, while the trend over the past month is shown to be downtrend. Hence the short-term prospect for the price may face a key resistance.
Chart 1: WTICOUSD Daily
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