In this edition of Market Bites, we will analyse the reasons for Crude Oil to bubble to 13-month highs and share where prices may head to from here. Read on to learn more.
Key factors for the surge in prices
The crude oil market typically trades on expectations ahead, instead of the present factors affecting market, and this has been the primary reason for the sharp rally in oil prices in recent weeks. The current surge in crude oil to 13-month highs of above $60 a barrel was supported by a cold snap that shut wells in the biggest U.S. producing state of Texas. Texas is home to 31 refineries. The surge in price was further aggravated by Middle East supply concerns after the Saudi-led coalition had destroyed an explosive-laden drone fired at the kingdom by the Houthi group in Yemen.
The global rollout of vaccinations has supported expectations of a recovery in the global economy and has also kept oil prices buoyant. Another key factor has been Saudi Arabia’s pledge of extra supply cuts in February and March.
What is likely to happen next?
A joint ministerial OPEC+ Committee (JMMC) meets in the first week of each month to review OPEC+ quotas and assess whether to tweak the then OPEC+ oil deal agreement. Traders and investors should closely watch the outcome and changes recommended by JMMC.
The recovery in demand will outstrip rising production in the second half of the year to prompt “a rapid stock draw” of the crude inventories since the outbreak of the coronavirus. However, drilling and the number of new rigs in the shale oil producing areas of America have steadily risen in recent months and these may halt the current re-balancing that OPEC+ is attempting.
Technical analysis for CFD Spot Brent Crude Oil (UKOIL)
Crude oil prices have rallied at a very fast pace, appreciating 30%, since November 2020. Prices seem severely overbought on the technical charts and are due for a pullback. Though, fundamental drivers are pointing to further appreciation of prices, there is potential for prices to go either way in the near term. The mid-term outlook though, is bullish.
The near term target on the downside is $50 a barrel, minor support lies at $54 a barrel. Top side prices may move up to $70 a barrel.
Capture opportunities in Crude Oil
- NYMEX WTI Crude Oil Futures
- NYMEX E-MINI Crude Oil Futures
- NYMEX Brent Financial Futures
- ICE Mini Brent Crude Futures
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