Oil Inventories Remain High Despite OPEC Cut, Extension Expected

Fundamental Forecast for USOIL: Neutral

Nationwide US Oil Output moved to its highest level since January 2016 per the EIA report on Wednesday despite U.S. Crude stockpiles falling by 2.2m barrels. The fundamental tug-of-war remains in play, but it’s possible the Oil Bulls could win out as the IEA report appears supportive for the fundamental outlook. In short, they showed that despite an increase in Crude Oil inventories, the OPEC-led production cuts had put the global stockpiles “very close to balance,” and we could see stockpiles exhaust in 2Q.

Even with stockpiles close to depletion, there remains hope that OPEC could extend their production cuts, which would bring the global Oil inventories to a net draw that could boost Oil prices easily to 2017 highs. While US producers have activated 28% more rigs in 2017, and there does not appear to be any intention to pull back production, the balancing Oil market should encourage the multitude of Crude Oil price Bulls while worrying the Bears.

The rumors surrounding the OPEC production cut extension continue to be supportive. Last week, the Nigerian Oil Minister shared that there is a “lot of energy” for the 6-month OPEC extension.

The charts appear encouraging as well. There was a strong bounce off the 55-WMA at the start of the Q2 opening range low of $49.91/bbl. The opening range low for Q2 will be a solid price level of support to watch because if that level holds, the bias will remain bullish, which aligns with sentiment analysis shared below.

Weekly Chart Is Encouraging & Aligns With Emerging Sentiment Picture