- WTI bulls capped at 6-week production heights have reduced hopes for membership.
- The path of least resistance remains bearish if the accumulation of stocks plunges again or if COVID-19 ignites.
Oil prices have been on fire since the start of the week, penetrating through resistance and has risen 13% since Monday. West Texas Intermediate crude for June delivery peaked 6 weeks on Thursday and spot prices followed suit in Asia today. However, at the time of this writing, the WTI is trading at $ 27.71, down more than 1% from the highs of $ 28.22.
The US dollar should be watched at this point. As actions continue to defy gravity, the US dollars could tell a story. Markets are nervous, there is uncertainty as to which global companies are trying to return to work as governments seek to maintain credit and advance the speed of money. All eyes are on the COVID-19 cases, with the recent surge in China and parts of Europe as the worldwide death rate reaches a dismal milestone of 300,000. In fact, China just reported 11 new cases of asymptomatic coronaviruses on the continent at the end of May 14. Bets are on the table for a V-shaped recovery and this should put pressure on oil prices. However, the bulls are still looking for something here and it boils down to some recent developments in the petroleum industry.
Further reduction in oil sales in the Gulf has boosted prices
First, the promises of the Gulf countries to accelerate the Great Rebalancing by further reducing their oil sales have given a price boost. Saudi Arabia urged fellow OPEC members and partners outside the cartel to further reduce their oil production. It is an attempt to accelerate the rebalancing of the oil markets.
The Saudis have promised to deepen up to 1 million barrels to 7.5 million barrels its own cutting quota. Reuters reported, citing the Saudi News Agency, which reported on a government statement which read as follows: “The initiatives of the Kingdom of Saudi Arabia aim to urge countries participating in the OPEC + agreement and other producing countries to abide by the reduced rates and to provide further reduction in production in order to help restore the desired balance in world oil markets. ”
Second, the United States has just marked its first inventory draw in Cushing for the first time during the coronavirus exchange regime. TD Securities analysts have argued that “as the rate of inventory accumulation continues to decline, the slope of the super-contango will also increase.”
We remain long WTI Dec20-Dec21 spreads to express this view. That said, CTAs remain positioned to continue to decline, and we do not expect a significant flow from this group of participants.
Prices are now back to the monthly resistance structure dating back to 2000. It will take an upheaval in the market and a return to norm in the world economy for a return to the levels of $ 40 and December 2018. The path of least resistance is south with $ 19.50 for a safe landing when descending. However, $ 33 is an achievable upward target as long as the countries participating in the OPEC + agreement and the other producing countries effectively adhere to the reduced rates.
Energy markets are strengthening in a more negative sense of risk, which implies that the recovery in the complex is strong enough to withstand the ebb and flow of risk appetite. This comes amid promises from the Gulf countries to accelerate the Great Rebalancing by further reducing their oil sales, just as the United States marks its first inventory draw at Cushing for the first time during the trading regime. coronavirus. As the rate of inventory accumulation continues to decline, the slope of the super-contango also increases. We remain long WTI Dec20-Dec21 spreads to express this view. That said, CTAs remain positioned to continue to decline, and we do not expect a significant flow from this group of participants.