Oil Hits Three-year High as Supplies Tighten Globally
By: Eddy Peng Jan 10, 2018
Crude oil surged to the highest level since December 2014 as its supply is tightening, spurred by OPEC-led production cuts and expectations that U.S. crude inventories have dropped for an eighth week in a row, the longest stretch of winter inventory declines since 2007-2008.
U.S. West Texas Intermediate (WTI) crude rose $1.532, or 2.48 percent, to settle at $63.394 per barrel after touching its highest since December 2014 at $63.24.
The Organization of the Petroleum Exporting Countries and allies including Russia extended the deal on oil production cuts through 2018, a second year of restraint, to reduce a price-denting glut of oil held in inventories.
Prices also has been supported by U.S. falling crude inventories by 11.2 million barrels in the week to Jan.5 to 416.6 million, according to the American Petroleum Institute, overwhelming analysts’ expectations for a decrease of 3.9 million barrels, If the data is confirmed by U.S. government at 10:30 a.m. EST (15:30 GMT) on Wednesday, the draw will be the largest since Sept. 2, 2016 when U.S. stockpiles fell by 14.5 million barrels.
“Production cuts and demand are continuing to rebalance the market,” Gene McGillian, a market research manager at Tradition Energy in Stamford, Connecticut, said by telephone.
Despite tightened supply boosted prices, higher prices could spur a bounce in U.S. crude production during 2018, offsetting curbs by others. According to the U.S. Energy Information Administration on Tuesday, U.S. crude oil production is expected to surpass 10 million barrels per day (bpd) next month, en route to an all-time record months ahead of previous forecasts.
This may discourage OPEC and Russia to maintain their deal to curb supply until the end of the year for fearing of losing market share.
Technically the bullish trend of the WTI remains intact as prices remain above key supports found on May 2015’s high of 61.555, right after finding supports on its decline. If WTI were to go back below the 2017 high of $60.48, which was hit late in the year, and the 2018’s opening price of $60.111, then the technical outlook would turn bearish on oil.
On the daily chart with the MACD indicator applied, it is still on the upward momentum. In the event of any reverse later showed as a head in the formation of the indicator, investors should be very cautious about a reversal trend.
Figure 1: WTICOUSD Daily
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