Some reasons about Crude Oil Price’s boom and what you have expect about it in the second quarter of 2019
This year has been a boom for crude oil investors. The price of crude has gained by more than 30%, with the West Texas Intermediate (WTI) and Brent currently trading at $60 and $68 respectively. This is a major increase coming after the sharp decline in the fourth quarter of last year. This article will look at the reasons why the price has increased and what you can expect in this quarter.
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In December, OPEC members and Russia met in Vienna for their annual meeting. The members agreed to cut production with the aim of raising the price of crude oil. True to their commitment, the members have continued to slash production, led by Saudi Arabia. This cap on production has helped ease the supply that was there in the past few months. In this issue, the United States under Trump have been relatively unhappy and in the past two weeks Donald Trump has sent two tweets asking OPEC to raise production. However, since the high oil prices policy appears to be working for OPEC, it is less likely that they will cut production.
Venezuela has the biggest oil reserves in the world and this year, the country’s political environment has been uncertain. The Maduro regime has continued to experience turmoil and protests especially from the rural areas. The reason for this is that inflation has gone up significantly and the population has been suffering. This has led to the Trump administration, Latin American countries, and other countries from the EU to recognize the opposition leader as the president. In addition, the US has put in place sanctions on the country, which has helped reduce the amount of oil it can export. Therefore, as the Venezuela crisis continue, investors will be watching the price of crude closely.
US Rigs Decline
This year, the number of oil rigs in the United States has been reducing. According to numbers from Baker Hughes, the number of rigs has declined from a high of 886 in November last year to 816 in the past one week. A reduction of oil rigs means that the amount of crude extracted during that time will be low. In addition, the inventory numbers released by Energy Information Administration has been relatively weaker compared to last year.
Investors like to follow the technical and as shown below, they have been sending buy signals. As shown, after falling to $50 a barrel in December, the price has been moving upwards. The current price is along the 50% Fibonacci Retracement level while the price remains above the 50-day and 100-day moving averages. The RSI has remained below the overbought level. Therefore, this setup has helped investors place their bets that the price will continue moving upwards.
The overall thinking among investors is that a slow economic growth leads to low oil prices. This year, the consensus have been that the global economic growth will continue to weaken. Therefore, the ongoing trade talks between China and United States have helped ease the trade worries. This means that if a deal is reached and signed, it will lead to higher oil prices.
We have previously written about it in this post