Crude Oil Analysis: Oil Prices Pullback from 2019 Highs on Trade War Update

Oil Price Analysis and News

• Easing Oil Supply Continues to Keep Crude Oil Supported
• Trade War Sentiment Dents Caps Oil Upside

Easing Oil Supply Continues to Keep Crude Oil Supported

Brent crude oil had edged towards fresh 2019 highs throughout the European morning with prices above $68/bbl. Yesterday’s DoE crude oil report showed a larger drawdown (3.8mln) than the API figures had signaled, while crude production in the US dropped by 100k barrels. Elsewhere, among the main supportive factors over the past 24hours had been on reports that the US are seeking to reduce Iranian oil exports to below 1mbdp from the current 1.25mbpd. Consequently, with nations such as India still look to import Iranian oil, it is possible that demand may drop ahead of the US waiver expiration in May.

Alongside this, with the struggles continuing for Venezuela with regard to limited oil production amid the US sanctions, Venezuela was dealt another blow after Indian oil companies announced that they would stop the sale of diluents (key for Venezuela to transport oil) to PDVSA until US sanctions had been lifted. Of note, latest OPEC monthly report stated that Venezuelan output dropped 142kbpd in February, according to secondary sources.

Trade War Sentiment Dents Caps Oil Upside

While the uptrend remains intact for oil prices with bulls targeting a move to $70. The latest negative trade war reports sparked a pullback in oil prices as sources noted that a summit between President Trump and Xi is unlikely to take place until April at the very least. As a reminder, USTR Lighthizer has been somewhat negative towards the prospects of an imminent trade deal, having highlighted that key issues remain a stumbling block to an agreement being reached. As such, given that markets have largely priced in a trade agreement, anything short could see risk appetite dampened, taking crude oil with it.

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NT CRUDE OIL DAILY TIME FRAME (MAY 2018 – MAR 2019)

Topside resistance at the 50% Fib continues to cap further upside for now. Elsewhere, while the negative RSI divergence on the daily time frame raises scope for a near-term pullback, signals are somewhat weak. Downside likely limit above the 38.2% Fib.

Oil Impact on FX

Net Oil Importers: These countries tend to be worse off when the price of oil rises. This includes, KRW, ZAR, INR, TRY, EUR, CNY, IDR, JPY

Net Oil Exporters: These counties tend to benefit when the price of oil rises. This includes RUB, CAD, MXN, NOK.

More Reading

What Traders Need to Know When Trading the Oil Market

Important Difference Between WTI and Brent

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX