Crude Oil Prices Near April Highs

Market scores fourth weekly gain as it weighs U.S. inventory, Canadian wildfires and OPEC actions

• Crude oil prices are on track to record a fourth weekly gain.

• Demand hopes are fueling a rally, but prices near the mid 80s are at risk.

• More inventory draws are needed to support a bullish narrative.

Crude oil set to record fourth weekly gain as demand picks up

Crude oil prices (/CLQ4) are nearly unchanged this morning trading, but the commodity is on track to record a fourth weekly gain. That would mark the longest weekly win streak since last summer, when price rose for seven straight weeks from June to August.

West Texas Intermediate (WTI) prices are up over 10% since bottoming in early June following a multi-month selloff. The market was overwhelmingly bearish this spring, as demand indicators pointed to weak fuel consumption amid a broader cooldown in consumer spending and gloomy Chinese economic data.

Inventory data over the past couple of weeks confirmed the views of bullish speculators who were betting on a rebound in demand. The Energy Information Administration (EIA) reported a 12.2 million barrel decrease in crude oil inventories for the week ending June 28, putting U.S. inventories 4% below the five-year average for this time of year.

Gasoline and diesel stocks dropped as well. That helped push crack spreads, which have failed to rally alongside oil prices, higher—an encouraging sign that helps support physical demand. The prompt spread in the oil futures market is also signaling support for the physical market, with backwardation between this months and next month’s contract at 91 cents.

Next week’s EIA report will shed light on demand through part of the U.S. Independence Day holiday. Analysts expect gasoline demand to rise from last year as more Americans travel. If data doesn’t live up to expectations, it could cause a pullback in oil prices, especially as we near the April highs.

OPEC production: Members increase production

Saudi Aramco, Saudi Arabia’s state-owned petroleum company, trimmed its selling price for Arab light crude to $1.80 a barrel above the Oman-Dubai average, according to Reuters. Meanwhile, two of Russia’s largest oil producers will reduce exports from Novorossiisk in July, also per Reuters citing sources familiar with a loading plan. Nevertheless, Russian oil continues to outcompete Saudi oil in Asian markets, particularly China and India.

The Organization for Oil Producing Countries (OPEC) and its allies, known as OPEC+, vowed at its meeting last month to extend production cuts into next year while also committing to better enforcement of the group’s quotas and a potential unwinding of some voluntary cuts. Cuts amounting to 2.2 million barrels per day (bpd) will be phased out over a year, starting in October. However, the cartel’s members have a history of overproducing against quotas. Saudi Arabia’s exports have pulled back in seasonal fashion.

A Reuters poll found that OPEC production rose 70,000 bpd in June. Iraq’s production fell 50,000 bpd, although it remains above its target and accounts for the bulk of OPEC’s 280,000 bpd of overproduction. Kazakhstan also remains above its quota. Nigeria increased output by 50,000 bpd.

OPEC will hold a monitoring meeting on Aug. 1.

Crude oil technical outlook

Crude prices are trading near the April highs, which is where we can expect to see some technical resistance come into play. Prices continue to trend higher and remain above key exponential moving averages, the 9-, 12- and 21-day exponential moving averages (EMAs). Traders will look for prices to hold above those EMAs on a pullback.

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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