Crude Oil: 51-53 Zone May Be A Big Hurdle In The Days Ahead Amid Increasing Concerns Of Supply Glut & A Hawkish Fed/Stronger USD

Crude Oil Outlook: 09/03/2017 (18:30 GMT)

LTP: 49

Crude oil broke the important positional support of 52 yesterday after surprising build up in US inventories, which flashed at +8.209M against estimate of 1.967M (Prior: 1.501M). There was also some chatter that Saudi Arabia may break the OPEC & Non-OPEC cut agreement sooner rather than later. EIA also raised production output forecasts from US shale oil for 2017-18 amid increasing numbers of oil rigs coming online.  

Apart from increasing concerns of supply glut due to more US shale oil productions, lack of adequate & corresponding demand may also undermine the global growth recovery. Also, there were some talks of cut in unproductive spending in US by Trump administration to plug the burgeoning budget deficit to fund the planned $1 tln infra package in PPP mode.

As par some estimates, contrary to earlier perception, US shale oil now break evens at around $30-40, thanks to their superior tech and in that scenario, despite OPEC & Non-OPEC production cut, it may be very tough for Oil to sustain above $55 in the near term. Also, on deeper thinking, the present OPEC cut agreement may be more of seasonal maintenance nature, which is bound to happen in this period of time, even if there was no agreement. This agreement may also end officially by June’17 itself.

Another factor going against the Oil is hawkish Fed and an impending rate hike next week, which is making USD stronger across the board. A stronger USD is generally bad for Oil.

Also, Trump’s energy policy for US and earlier rhetoric that he will made America energy independent to rely less on imported oil and will thrust for more “American oil” may be a hangover for oil as despite OPEC & Non-OPEC cut, oil has failed to sustain over the strong technical barrier of $56; market may be concerned over US energy policy under Trump.

Technically, Crude Oil (LTP: 49) need to sustain above 47; otherwise it may fall more towards 42 and consistent closing below that, may further fall towards 39-25 zone in the near to midterm.

On the other side, Crude Oil need to sustain above 51-53 for 56 area and only consecutive closing above 56, it may further rally towards 63-68 zone in 2017.

Analytical Charts: Crude Oil