Ripples Advisory, WTI crude prices may reverse if it closes below $64/bbl
"Growing concerns over US’ relations with major oil producers like Iran and Venezuela is threatening the market," says Hareesh V of Geojit Financial Services
Crude oil hit its highest level in three-and-a-half-years in the week gone by. Oil prices have been in a recovery mode since 2016. The momentum is still continuing, despite worries about the trade stand-off between the US and its allies, which send global stocks and commodities tumbling down.
The Organisation of the Petroleum Exporting Countries and other top producers, including Russia, have reduced daily crude output by 1.8 million barrels. Supply disruptions owing to geopolitical tensions, record global demand and positive outlook from analysts and investment banks aided positive momentum in the oil market.
However, the recovery in momentum was gradual as the reduction in supplies due to OPEC led voluntary cut and unplanned supply disruption from Canada, Libya and Venezuela were virtually balanced by high US shale output.
Shale oil production is at its peak in the US, with refineries operating at its highest average capacity utilisation due to record worldwide demand. At present, the US is the second largest oil producer behind Russia, and their inventories continued to be on a declining trend.
Recently, OPEC and its allies agreed to increase daily production limits at their latest meeting held at Vienna. Against a backdrop of calls from the US, China, and India for more oil supply to stabilise the market, OPEC decided to raise output. However, the group failed to announce a clear target for the same.
Enhancing production largely benefits Saudi Arabia as most other member countries are currently pumping oil close to its capacity or losing output due to various reasons.
While the market was prepared for wide swing after the OPEC meeting, the outcome had initially limited the price impact. However, prices recovered swiftly with the WTI crude surging to $74 a barrel, its highest level since November 2014.
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