WTI on track to record second weekly loss

WTI extended its fall this week and it is currently found trading near $76 per barrel. The Fed’s interest rate decision yesterday was apprehended as dovish by the market and caused the dollar’s fall to fresh 9-month lows and energy traders’ focus turns towards the looming European Commission’s proposal for a price cap on Russian crude.  In this report, we aim to shed light on the catalysts driving WTI’s price, assess its future outlook and conclude with a technical analysis.

IMF forecasts China as leader of global growth in 2023

After a grim global outlook forecast at the start of 2023, the International Monetary Fund revised its predictions and pointed out that China will be the key driving force behind global growth for the year ahead. Even though, inflationary pressures, high-interest rates and the ongoing war in Ukraine persist, the Fund upwardly revised its forecast to 2.9%, up from the initial 2.7%, citing that “economic growth proved surprisingly resilient in the third quarter of last year, with strong labour markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe. Inflation, too, showed improvement, with overall measures now decreasing in most countries—even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries”. The organization’s chief Economist, Pierre-Olivier Gourinchas placed significant importance on the prospects for better-than-expected recovery of the Chinese economy after the abrupt pivotal abandonment of its strict zero covid policy and stated that the “re-opening paves the way for a rapid rebound in activity”. He added, “The restrictions and COVID-19 outbreaks in China dampened activity last year. With the economy now re-opened, we see growth rebounding to 5.2 per cent this year as activity and mobility recover.” Besides China, the IMF foresees India playing a big role as well, stating that “together with China, India will account for half of the global growth this year, versus just a tenth for the US and euro area combined.” Despite the optimistic outlook projections however, the organization reminded that the “global economy is poised to slow this year, before rebounding next year and growth will remain weak by historical standards”.

OPEC+ guidance remains unchanged

Yesterday, the OPEC+ ministerial meeting failed to provide oil traders with significant information, as the committee reaffirmed that the oil cartel will keep its production quotas unchanged for the foreseeable future. In November of 2022, OPEC+ decided to cut its production output by 2 million barrels per day until the end of 2023 to bring the market back to equilibrium. The Head of OPEC+, Haitham Al Ghais at the time, stated that the reason behind the decision, was the apparent deviation between market fundamentals and oil prices, vowing to protect the cartel’s interests. According to Reuters, the ministers did not discuss the prospects of increased demand from China once its economy returns to normal, nor about supply-related concerns from Russia, whose exports will soon be subject to a European ban and G7 price cap. China’s pivotal shift near the end of 2022, to abandon its draconian covid related restrictions and opt for a full-fledged reopening, has boosted optimism for higher oil demand in recent months and prompted speculations that OPEC may be incentivized to increase output to match the thirst of the second largest oil consuming country.

Crude inventories continue to build up

On Tuesday the weekly API crude oil inventories figure pointed to the buildup of 6.3 million barrels in stocks, higher than the expectation for a drawdown of -1.0 million, while yesterday EIA’s weekly oil inventories recorded a rise of 4.1 million barrels of crude, exceeding expectations of 0.37 million for the same period. The results suggest weakening demand for crude which may have contributed to the fall of WTI prices in the past few days. It is important to strike out that the API crude oil inventories have been piling up for five consecutive weeks, while the EIA’s inventories recorded a 6-week string of buildups, the highest in over 2 years. Lastly, we would note that last Friday the Baker Hughes oil rig count showed that the number of active oil rigs in the US has dropped by a count of 4 reaching a total of 609, which could serve as another indication for a slowdown in demand.

Technical Analysis

WTI Cash H4

Looking at the WTICash 4-hour chart we observe oil prices extending their downward motion this week and are currently attempting to consolidate near the 76.60 (S1) support level. We hold a bearish outlook bias for the commodity given the descending trendline initiated on the 27^th of January and supporting our case is the RSI indicator below our 4-hour chart that currently registers a value of 34, signalling bearish tendencies surrounding WTI. We also note that the price action broke below the 100 and 200 period Moving Averages, which could be interpreted as another signal that the bears are in control.  Should the bulls take initiative over crude’s direction, we may see the price action rise and break the 79.00 (R1) and move closer to the 82.60 (R2) resistance barrier. Should on the hand the bears reign over, we may see the price action break below the 76.60 (S1) support level and move decisively lower towards the 73.50 (S2) support base.

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