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Oil looks to recover after large weekly drop

Summary:

  • Brent Oil looks to rebound and is higher by more than 1% on the day
  • OPEC monthly report shows record compliance in January
  • But latest rig count data shows large rise

Last week saw some major declines in the price of crude with Brent Oil sliding almost 8% but the start of this week has been a little more upbeat for the markets with price higher by more than 1% at the time of writing.

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 Last week saw a large drop in the market for Brent crude. Source: xStation

The benchmark was already higher this morning when the latest monthly report from OPEC was released and there were several notable comments to take from the publication. OPEC crude oil production in January decreased to an average of 32.3M bpd and global oil demand is expected to reach 98.6M bpd in 2018 - up 60k from December forecast were two of the most positive. 

OPEC secretary General Barkindo has been picked up on the wires with the following comments particularly interesting:

  • OPEC cut compliance hit record in January
  • sees strong demand and a further drop in inventories
  • OPEC, non-OPEC producers need to keep cooperating beyond 2018
  • OPEC backs Libya and Nigeria in their efforts to raise output

Overall the tone seems fairly upbeat but the majority of the gains in price were actually seen before these events and the market reaction to them has been fairly subdued. The rise seen in the second half of 2017 and first month of this year have raised concerns that US shale producers will react by increasing their activity and with US production overtaking that of Saudi Arabia last week it is clear they are ramping up their output. Friday evening saw the weekly Baker Hughes rig count released and this showed another significant increase which further supports the notion of US shale increasing their potential output in response to the relatively high price of crude. 

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 Last week saw a large increase in the US rig count which, should it continue, will likely lead to higher production going forward. Source: Bloomberg

Looking ahead you can see that last week’s drop saw the market fall below the 23.6% fib at 64.48 of the prolonged rally form last June’s low. This is now an area to look for possible resistance but a failure to move cleanly back above there would leave the possibility of further downside with the 38.2% and 50% at 60.64 and 57.54 potential targets. 

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 Fib retracements of the rally can give levels to watch out for with the 23.6% at 64.48 possible resistance at the 38.2% at 60.64 potential support. Source: xStation

 

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