Crude Oil Prices Surge to New 4-Month High
Crude oil (West Texas Intermediate) futures hit a new 4-month intraday high on Monday at $59.23. This is the highest level since mid-November of last year. OPEC’s (Organization of the Petroleum Exporting Countries) continued stance on curbing oil supply has largely been responsible for fueling the surge in crude oil prices since the late December lows.
Prolonged OPEC Supply Cuts
On Monday, OPEC and its allied oil producers agreed to cancel a planned April meeting. This essentially means that the group’s oil production cuts will stay in place at least until June. This decision was made due to concerns that the global oversupply would last at least through the first half of 2019.
Over the weekend, Saudi Arabia also indicated that member countries may extend the supply curb well past June. As a point of reference, OPEC and its allied producers initiated a second round of supply cuts in January. This was a reaction to the steep plunge in crude prices during the fourth quarter of 2018.
Also helping to boost oil prices recently have been U.S.-led sanctions on Iran and Venezuela, both major OPEC producers.
Crude Oil Chart
The chart above shows the sharp climb in crude oil prices within the past three months. Currently, price is still below its 200-day moving average, but above its 50-day moving average and trending higher.
The chart also shows a key technical chart pattern – an inverse head-and-shoulders formation. This is typically a bullish pattern. Whether this bullishness plays out or not will depend in large part on the global supply situation and OPEC’s next moves.
Up this week, on Wednesday, is the weekly report on U.S. crude oil inventories. In the previous week, the U.S. Energy Information Administration (EIA) revealed a massive draw of 3.9 million barrels against previous expectations for an increase of 2.7 million barrels. Any additional downside surprise on Wednesday could lead to an extension of the recent crude oil rally.
Will the Crude Oil Rally Last?
Again, this will depend in large part on how OPEC and its allies decide to move forward with their existing supply cuts in the next few months. It will also depend on how these cuts may or may not affect global oil supply.
Demand is the other key part of the equation. A slowing global economy (particularly in China) will weigh heavily on crude oil prices. A healthier economy generally equates to higher energy demands and higher crude oil prices, and vice versa.
The major fundamental factors to watch, therefore, will continue to be OPEC, crude oil inventories, and key economic growth data, especially from the U.S. and China.
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Senior Market Analyst at The Technicals
A veteran global macro trader/analyst, Bart focuses on major market moves in currencies, commodities, fixed income, and global equity indexes. Bart stresses inter-market correlations and dynamics while keeping a close eye on risk. He has published countless market analysis pieces and has been a guest expert for a variety of major financial media. Contact Bart