When we look at the chart, we can see trend channel is building up. The market breaks the strong resistance and it’s aiming to 90 USD. At this point, this level we can consider as important point. If it breaks, the market will go to 100 USD and could rise higher. The breakout won’t be immediately after reaching this point. After testing this point (90 USD) I expect retrace back to the EMA or the levels near the 80 USD. Technical analysis seems to be prepare for bull run. That is just my point of view, not investing advice. Now let’s look, what fundamental analysis says…
The outages from Iran are worse than most analysts expected, and bottlenecks in the U.S. shale patch could prevent non-OPEC supply from plugging the gap. To top it off, new regulations from the International Maritime Organization set to take effect in 2020 could significantly tighten supplies.
Put it all together, and “the likelihood of an oil spike and crash scenario akin to the one observed in 2008 has increased,” Bank of America Merrill Lynch wrote in a note. BofAML has a price target for Brent at $95 per barrel by the end of the second quarter 2019. In 2008, Brent spiked to nearly $150 per barrel.
The supply picture is looking increasingly worrying. with Venezuela and Iran the two principal factors driving up oil prices in the fourth quarter. Notably, the bank increased its estimate of supply losses from Iran 1 million barrels per day (mb/d), up from 500,000 bpd previously.
U.S. shale can partially make up the difference, but the explosive growth from shale drillers is starting to slowdown, in part because of pipeline bottlenecks. BofAML sees U.S. supply growth of 1.4 mb/d in 2018 but only 1 mb/d of growth in 2019.
That means that there isn’t the same upward pressure on WTI as there is on Brent, largely because infrastructure bottlenecks in the shale patch keep supplies somewhat stuck within the United States. And it isn’t just in West Texas where the constraints are causing problems.
Meanwhile, the demand side of the equation is not as clear. For now, demand still looks strong. The IEA puts demand growth for 2018 at 1.4 mb/d, and Bank of America Merrill Lynch agrees. But BofAML says three important demand-side factors to watch, which could undermine the high price scenario.
First, the dollar is strong, which would likely prevent a run up in prices in the same way as in 2008.
Second, higher debt levels in emerging markets means that many countries are in a weaker spot than they were in 2008.
Third, capital could continue to flee emerging markets because of rising interest rates from the Federal Reserve, U.S. corporate tax cuts and U.S. tariffs.
One of the key factors that will determine whether this happens or not is how Saudi Arabia responds.
“Our plan is to meet demand,” said Saudi Energy Minister Khalid Al-Falih. “The reason Saudi Arabia didn’t increase more is because all of our customers are receiving all of the barrels they want.” His comments came after the OPEC+, which ended with no plans to increase output.
“It’s tearing higher,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S, according to Bloomberg. “Technicals and fundamentals seem to be pointing in the right direction at the moment and that can be quite a potent cocktail.”
Fundamental Source: Zerohedge.com