Oil: OPEC+ takes the lead role, the United States acts as a troublemaker

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01/18/2019 | 03:49 pm
Data from the state of oil supply and fears related to the global economic slowdown continue to drive oil markets as we enter this new year. These markets can easily be described as dynamic: Brent crude oil prices have actually risen by around 12% since January 1, partly offsetting the 40% drop in oil prices in the fourth quarter of 2018.
In this volatile context, it must be noted that the market rewards the determination of OPEC member countries to lower their production levels.

Concerned about the increase in global supply and the resulting fall in prices, OPEC and its partners, including Russia, agreed in December to resume production cuts as of 2019, amounting to 1.2 mbpd. However, the efforts made by the oil cartel did begin before the production agreements came into force. In its last monthly report, OPEC reported that its production had fallen by 751,000 barrels per day, a reduction mainly due to Saudi Arabia but also to unintended declines, particularly in Libya.

At the same time, operators remain attentive to American production, which is constantly growing. According to the latest data from the U.S. Energy Agency (EIA), it stands at 11.9 mbd, a level never before reached. EIA models also predict that US supply, mainly driven by non-conventional hydrocarbons, is expected to reach an average of 12.9 mbd in 2020. Nevertheless, the Agency is forecasting a return to a stronger demand this quarter (see graph).
Oil supply/demand - Source EIA

Then there are the unknown, who are not lacking. These include the trajectory of demand, which is still uncertain given trade tensions and the Chinese problem. In addition, observers have difficulty predicting the dynamics of Iranian exports (which increased in December). There are also questions about the Venezuelan production apparatus, whose decline is showing signs of slowing. 

From a graphical point of view, in weekly time units, with excesses being corrected by excesses, Brent prices have rebounded significantly since the beginning of the year. Nevertheless, prices are finding a major obstacle as the price approaches $62 per barrel. This test will determine the power of the bottom movement and will separate the simple technical rebound from the medium-term low point. As such, it will be necessary to close above this line to release a potential increase towards $70. On the other hand, a failure would be synonymous with a continuation of the downward trend towards the recent lows at $53.
Jordan Dufee
MarketScreener.com 2019
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