Published: Wed, February 21, 2018
Markets | By Josh Butler

Oil Prices Mix but Maintains Support

Oil Prices Mix but Maintains Support

"(This is although) Friday's price movements were likely position sensitive, amid USA dollar risk reduction and book squaring, ahead of tomorrow's oil contract expiration.

Traders have been keeping close tabs on broader economic trends in order to search for signs of looming inflation, a trend that led to sharp declines in the equities market.

Spot gold was up 0.3pc at $1,354.55 an ounce, and headed for a fourth straight session of gains.

Bloomberg speculated that "Choosing a different measure of success could further reinforce the need for supply curbs to continue for the whole of 2018 - something Saudi Arabia is keen to ensure as it prepares the historic initial public offering of its state oil company".

A FEW days ago, the International Energy Agency reported oil production in the USA was undergoing extraordinary growth. The IEA expects USA crude output to reach 11 million bpd in 2018.

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"With oil prices recently rising above the USA shale breakeven price, estimated to be $63 per barrel in 2018, United States shale producers are likely to have already locked into forward prices around this oil price level and have already begun to ramp up production this year", QNB's note said. The EIA (Energy Information Administration) monthly report suggested a revision in US November output to above 10 mbpd.

However, earlier this week both Saudi Arabia and Russian Federation admitted publicly that the metric to measure stockpiles is flawed and must be replaced - which implies that any claim made by OPEC or other parties about the true state of the crude market is questionable at best. OPEC output continues to be lower in y/y comparisons and compliance is improving.

On the demand side, Chinese imports touched a record 9.57 mbpd in January, almost 0.4 mbpd higher than the record set in March 2017.

That was largely due to soaring U.S. crude production, which has jumped by over 20pc since mid-2016 to more than 10m bpd, surpassing that of top exporter Saudi Arabia and coming within reach of Russian Federation, the world's biggest producer. It remains to be seen whether these declines will signal a buy to push markets higher or whether they will begin a longer-term downtrend. However, failure to breach this resistance zone could cap further gains and once again result in a slide towards immediate support at Rs 3,960-3,930 range.

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