OPEC’s ongoing production cuts are continuing to help tighten the world oil market, writes Fawad Razaqzada.
OPEC’s ongoing production cuts are continuing to help tighten the world oil market. This is helping to offset global economic concerns, which have actually not had any significant impact on crude prices yet as they did from time to time on bonds, stocks and copper prices.
Indeed, both oil contracts climbed to fresh highs for the year today as Brent touched $68.80 and WTI edged up to $61.20. However, the gains are likely to be kept in check due to the still-rising U.S. shale production. Although U.S. drilling activity has decreased in recent months and oil output fell in January, production was still up nearly 20% compared to a year-ago. Now that prices are on the rise again, this will likely encourage some U.S. energy companies to ramp up production and increase spending.
With the world economy apparently slowing down, this bodes ill for demand outlook. Although the improvement in Chinese, UK and US manufacturing PMIs is a welcome sign, the unexpected drop in U.S. retail sales is another sign consumer spending may be levelling off at the world’s largest economy. The crude oil rally is therefore likely to fade at a not-too-distant future. For now, though, the trend is bullish and short-term momentum-cashing traders are happy to fade the dips rather than the rips. But soon that could change.
Source: TradingView and FOREX.com.
