WTI Challenges Highs As OPEC Talks 2019 Supply Cut

Market Overview

Not long after we said the technicals across the energy complex were setting up for bearish momentum, WTI prices broke above key resistance and quickly climbed toward $66. Several geopolitical issues preceded crude’s rally. First and foremost, Saudi Arabia issued comments suggesting the OPEC led supply cut agreement may be extended into 2019. No doubt, OPEC is feeling the pressure from US output which rose to 10.4 million bpd last week. Additionally, tensions in the Middle East remain elevated as the United States and Saudi Arabia are taking a more aggressive approach to Iran. The United States in particular is stoking some bullish flames as President Trump once again suggests the US will pull out of the Iran nuclear deal. The end of the deal and a return of sanctions would have a significant impact on Iran’s ability to export crude.

Event risk this week is light with only a few major economic indicators scheduled for release. Annualized US GDP will be announced Wednesday at 8:30 am with analysts expecting a 2.7% growth rate compared to the previous rate of 2.5%. Thursday looks to be the busiest day this week with German unemployment at 4:00 am and Canadian GDP at 8:30 am. Also, at 8:30 am on Thursday the headline figure for personal consumption expenditures (PCE) is scheduled for release. The PCE is a closely watched indicator for the FOMC and can give traders insight to future rate hikes.

Technicals

WTI

WTI futures had a major push higher after price broke out of its short-term symmetrical triangle and cleared resistance at $64.00. Price is currently testing major resistance around $66.00 which was formed in late January of this year. At the moment, selling pressure seems reserved for profit taking, so it’s too early to call for a reversal. On the intraday, price is setting up key areas of support at $65.50 and $64.50. If the fundamentals turn bearish or profit taking becomes more severe, we should see price break below these levels of support and extend toward $62.50. On the other side, we’ll need to see price clear $66.00 for WTI to confirm any additional bullish intent. OPEC has said numerous times that $71 per barrel is their price target for global crude and Brent futures are trading just shy of the $71 level. While market participants would rather see higher oil prices than lower, as indicated by positioning sentiment, they are aware of OPEC’s line in the sand and the threat of increasing supply out of the US.

ULSD

ULSD futures have placed two clear levels of support at $2.01 and $1.99. Price is tracking crude oil closely and hasn’t shown any real symptoms of declining seasonal demand. In fact, since March 13th ULSD has outperformed WTI with the crack spread rallying from $17 to just below $19.50. Last Thursday, price cleared a moderate resistance level, now turned support, at $1.99 and has traded as high as $2.0366. If bullish momentum continues to dominate, the $1.99 level should hold, and we may see price challenge resistance at $2.04.

RBOB

RBOB is having a bit more difficulty than ULSD in clearing major resistance. Last week, price managed to break above resistance at $2.02 but has since fallen back to test the same level. We’ll be looking for price to maintain position above $2.02 and $2.00 so long as WTI remains supported. A break below $2.00 on fundamental weakness could see a rather large bout of profit taking which would drive prices lower.

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