Crude Jumps With U.S. Stockpile’s Decline

Crude surged on Tuesday to break to the July 20th’s highs, reaching to the top since June at 48.485. It jumped nearly 4.57 percent back to $48 per barrel as OPEC moved on Monday to cap Nigerian oil output and called on several members to boost compliance with production cuts, which aim to help clear excessive global stocks and support flagging prices.

OPEC has agreed with several non-OPEC producers led by Russia to cut oil output by a combined 1.8 million barrels per day (bpd) from January 2017 until the end of March 2018, stating Libya and Nigeria were exempted from the limits to help their oil industries recover from years of unrest.

The deal to curb output propelled crude prices above $58 a barrel in January but they have since slipped back to a $45 to $50 range as the effort to drain global inventories has taken longer than expected.

Oil futures traded as much as 5 percent higher, extending its session’s gains, while a report released by American Petroleum Institute on Tuesday revealed crude inventories declined by 10.2 million barrels last week. That would be the largest shrink since September if Energy Information Administration data confirms the decline on Wednesday.

Although oil surges recently, some lingering doubts over the pace of the oil market rebalancing still exist, with increasing oil supplies from the U.S., Libya and Nigeria threatening to hinder curbs by members of the Organization of Petroleum Exporting Countries and its allies. Saudi Arabia is less likely to act alone to balance the market and other nations should improve their implementation of supply cuts.

For fundamentals, investors should be more focusing on tomorrow’s Fed Interest Rate Decision which has a forecast of 1.25 percent, matching the former figure. If the U.S. interest rate remains unchanged, there is no much impacts on oil prices.

Technically it is now touching the upper level of descending price channel, with facing a great resistance. If it successfully breaks to it, traders may see a further increase in the short term; otherwise, it will reverse lower and continue to follow the price channel in the middle term.

When we see the longer term outlook of oil prices, it is currently standing far away from the median line which is considered as a support level. In the event of crude prices are falling back, the median line will be seen as a support in the long term.

Chart 1: WTICOUSD Daily

Chart 2: WTICOUSD Daily (2)