Crude Oil Market Aims Higher as Tailwinds Converge
Crude Oil Market Aims Higher as Tailwinds Converge
Oil prices rise to $80 per barrel level
- Oil price challenge $80/barrel as bullish factors converge.
- The EIA report shows bullish product drawdowns that surprised analysts.
- Backdrop supports oil prices in $81-$84 range Friday’s NFP poses risk.
Crude oil futures (/CLJ4) challenged the $80/barrel level on Wednesday as bullish tailwinds converged to aid the commodity’s ascent, which has been in place since early February.
With prices up nearly 20% since then, you’d expect there to be some consolidation before moving higher, but recent developments have helped strengthen the case for the move to continue.
EIA report shows bullish product draws
One of those developments was today’s inventory numbers from the Energy Information Administration (EIA). The inventory report for the week ending March 1 showed a smaller-than-expected build for crude oil stocks at +1.37 million versus an expected +2.12 million barrels.
The products side was even more bullish and draws from that area are sometimes more predictive of higher oil prices than oil draws. That is because product draws can lead to crude inventory draws since refiners use oil to make gasoline, diesel, and other oil-derived products.
The EIA report showed a 4.46 million withdrawal in gasoline stocks, which was much deeper than the -1.64 million consensuses forecast. Distillates showed similar behavior, drawing 4.13 million versus an expected -665k barrels. The product draws should help support the broader equity-based energy sector.
OPEC and Saudi Arabia add to bullish tailwinds
Earlier this week, Saudi Aramco, Saudi Arabia’s state-owned petroleum company, lifted its official selling price (OSP) for its Arab light crude to Asia. The April delivery price was set at $1.70 over the Platts Dubai/Oman benchmark after being +$1.50 per barrel in February and March.
The move follows a decision from the Organization of the Petroleum Exporting Countries (OPEC) to extend its production cuts into the second quarter of this year. While the decision was expected and even disappointed some who were calling for longer cuts to extend through the end of the year, it should help to underpin the bullish supply side of the market.
Global backdrop remains supportive
Meanwhile, there are reasons to be optimistic about the demand side. China recently unveiled its growth target for the year, setting it at 5%.
Policymakers followed it up by hinting at possible stimulus measures it could take to help support that goal, including cutting the reserve requirement ratio (RRR) for the nation’s banks. At the same time, the United States is expected to see some rate cuts as soon as June from the Federal Reserve, with Fed funds futures pricing in a 53% chance for a June cut. That should help support an already resilient economy.
Overall, crude oil prices should have the supportive backdrop to rise to about the $81-$84 per barrel range over the next week. However, one thing to watch out for is Friday’s U.S. jobs report. If the report’s headline figure comes in over expectations (+200k), it could push rate cut odds to the right, which would likely hurt oil prices.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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