UK Oil

11:23, 14 March

Moves Towards Three Month High Near $68 on Supply Cuts

In the last couple of weeks oil has steadily inched higher and in the last 24 hours has surged higher to be within reach of a three month high near $68. A few weeks ago oil dropped sharply after reaching a three month high just shy of $68, however it has enjoyed a very solid start to the year 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 provided some support several earlier in the year as oil consolidated a little in that time and started to steadily move higher to reach the three month high, as well as back in November last year.

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 in late December. 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.

Several 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.

Despite U.S. President Donald Trump publicly urging the Organization of the Petroleum Exporting Countries (OPEC) to lower the cost of crude, applying pressure on the Saudi Arabia led group to ease off on its price-boosting output cuts, oil has continued to remain around its highest levels in several months. They have also been ably supported by supply cuts led by the Middle East-dominated producer group of OPEC. On Sunday, Saudi Energy Minister Khalid al-Falih said that the production-curbing agreement would likely last until at least June. Saudi Arabia also indicated it would cut April exports. Further, oil markets have been impacted by the implementation of U.S. sanctions against oil exports from OPEC-members Iran and Venezuela. In Venezuela, the worst blackout on record has left most of the country without power for six days, leaving hospitals struggling to keep equipment running, and exports from the country’s main oil terminal stranded.  The failures in the electrical system will impact on output from Venezuela. There is some downside oil price risk coming from the ongoing concerns with global growth and strong oil supply growth from the United States.