Crude Takes Out Critical Support Level

Andamento del mercato - 26/05/2015

Fears of crude oversupply are resurgent after several weeks of outflows from storage is indicative that producers storing output in an effort to wait out higher prices are panic selling against predictions of another downturn. Even with stronger seasonal demand in the United States, the impact of refinery maintenance is waning, leading to another possible downturn in crude prices. One of the main culprits behind a prospective drop is the slowing nature of global trade. According to the latest figures, global trade has continued to slip, evidenced by the continued weakness in dry shipping rates which have yet to rebound from near multi-decade lows. Add to the number of factors predicting weakness the technical picture and suddenly the perfect storm has arrived in oil markets. WTI’s fall below support at $59.12 beckons a test of major support sitting at $58.11. Any break of this key level paves the way towards $56.50 and $55.72. Major upcoming fundamental events could similarly corroborate the technical view.

 

OPEC is set to meet June 5th, but output targets are not expected to change whatsoever despite the concerns of Venezuela and Nigeria, the two most fragile members of the cartel that have the most to lose politically from present policies. Monetarily speaking, it is member nations like Kuwait and Saudi Arabia that bear the brunt of the costs owing to their high output relative to other producers. Nevertheless, OPEC targets are soft targets, meaning that no formal measures are in place to prevent members from abandoning or exceeding quotas. Protest from the aforementioned Nigeria and Venezuela including regional Sunni foe Iran are likely to fall on deaf Saudi ears. The nation via Energy Ministry mouthpiece Al-Naimi makes no bones about its intentions which are to preserve and maintain market-share. Cutting output might temporarily allow oil prices to adjust higher, but the amount of additional production that would result would force prices immediately back lower.

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