Originally published by AxiTrader
Oil again traded into the $47 region last night as the news that Libya has ramped up production and a continued focus in rising US production counter-balanced the solid compliance report from OPEC members.
WTI broke the trendline support from the November low last night and collapsed to a low of $47.33 – just 25 cents or so above the lows for2017 just north of $47. It's back above $48 million now after a large draw of more than 4 million barrels in the latest API data.
That fall overnight continued the run of weakness for crude which is extending into its 3rd week and comes despite the fact that OPEC, while it has yet to formally commit, has made the right noise about an extension to the production cut deal at the upcoming meeting.
Indeed earlier this morning a Russian government official said the country favoured an extension for another 6 months.
But even with high compliance to the agreed production cuts prices have been slipping. In no small part that is because of US production which, John Kemp from Reuters highlights, "rose by more than 450,000 barrels per day (bpd) in the five months ending in February, according to the US Energy Information Administration (EIA)".
Now, throw in data contained in the US PCE report on what consumers are spending on gasoline and you can see why maybe, just maybe, the supply/demand imbalance is not what it seemed. At least at this juncture
US real personal consumption expenditure on gasoline as at April was down 5.29% year on year with the 12-month moving average also sneaking into negative territory.
But what's really interesting about this dynamic is that Reuters Kemp says "most of the increase so far has come from non-shale producers in the Gulf of Mexico and Alaska. But the massive increase in the number of rigs drilling onshore should ensure shale output rises substantially in the remainder of 2017."
To reiterate - the onshore US production hasn't really ramped up yet.
Which is why it is so critical for OPEC and its partners to extend their production cut deal if prices are to rise and hold above $50 a barrel as many expect.
Looking at the price action of WTI and the chart it's clear that $47 is important on the daily charts. But on weekly and monthly charts that level is even more obviously important. A break, if it came would open the way to the 38.2% retracement level of the 2015-2016 rally in the $44.10/20 region.
I'm expecting OPEC to reach a production cut extension deal and I'm respecting the range bottom at $47 in the same way I respected the range top above $55. But if $47 gives way a run toward $44 is on the cards. But there are likely to be plenty of buyers down there.
Have a great day's trading.