UK Oil

11:55, 14 February

Climbs to Three Month High as OPEC Cuts

Oil has started this year well rallying from 16 month lows below $50 at the end of last year, back up to the key $58 level and beyond, after its doom and gloom to close out 2018. The $58 level continues to play a role and has provided some support in the last few weeks as oil consolidates a little in that time and is steadily moving higher to reach a three month high in the last 24 hours.
The $58 level supported oil very well for several weeks at the end of last year and is likely to continue to do so. Starting at the beginning of October, oil fell sharply from its multi-year high above $86 down to its lowest levels in 12 months below $58 at the end of November before falling lower to 18 month lows a couple of weeks ago.

For several weeks, oil was able to find some much needed support from around $58 and enjoy a reprieve from the immense selling pressure which has dominated it for the last couple of months prior, which is why this level is currently significant. A couple of months ago oil hit the key level of $71 where it did receive some temporary support from, and likewise at $75 which propped up oil for a week. However both of those key levels gave way to immense selling pressure pushing it lower.

Whilst not as significant as the current $58 level, the $71 level is likely to offer resistance should oil continue its rally higher. Oil enjoyed a very healthy August and September moving from that key $71 level to its highs before falling back to the same level. Just prior to this pronounced move up to its recent highs, oil was content to remain within its trading range between $71 and $75.

Oil is being influenced by several factors of late - it is widely accepted that the world economy is losing momentum amid a plethora of downside risks including lingering U.S.-China trade tensions and geopolitical uncertainty. The Organization of the Petroleum Exporting Countries (OPEC) said earlier this week that it had cut its output by almost 800,000 bpd in January to 30.81 million bpd, with Saudi Arabia responsible for most of that reduction. Saudi Arabia's Energy Minister Khalid al-Falih says production will fall below 10 million barrels per day in March. In its monthly market report on Wednesday, the International Energy Agency said the global oil market remains well supplied and output would still likely outstrip demand this year, despite OPEC's efforts and U.S. sanctions on Iran and Venezuela. "Oil prices have not increased alarmingly because the market is still working off the surpluses built up in the second half of 2018," the IEA said. "In quantity terms, in 2019, the U.S. alone will grow its crude oil production by more than Venezuela's current output. In quality terms, it is more complicated. Quality matters."