Oil: the major trends of the week
The week is still respectively positive for oil against the background of several crucial factors, including the following key issues: the US dollar easing, the US oil reserve decreasing and OPEC member’s disagreements about several fields development.
A key factor, influencing the oil quotes now and probably the next few weeks, is the fact that Saudi Arabia, Kuwait and Iran are planning to increase oil production volume. Saudi Arabia is upgrading the Shaybah field capacity, that may produce additional oil volume within the coming months, if the modernization is finished according to the plans, i.e. by June of the current year.
Kuwait’s oil production suffered last week because of oil workers’ strike, but as it ended oil will be produced more actively in Kuwait.
Iran continues to increase oil production, willing to return to the value before sanctions. Starting from the current year, the daily production performance is increased by 1 million barrel; that consequently leads to target value of 4 million barrels per day.
However, there is a number of crucial factors too: firstly, the US oil reserve report for the previous week shows the decrease by 1.1 million barrel, thought the increase by 2.4 million barrel was expected. The American Petroleum Institute (API) relies on the previously received data and says that the current oil reserve volume is on 538.4-million-barrel level.
By the same token, there is information about Saudi Arabia’s and Kuwait’s inability to continue Khafji field development. Let us remind, that the field was closed in October 2014 due to the environmental issues. The field’s potential is estimated as 300 thousand barrels per day, and it may lead to higher oil productivity of both counties, but the field seems to be still closed for now.
Moreover, one of the key factors is the US dollar easing prior to the Federal Reserve meeting. Despite the fact that the US dollar adjustments and its further easing are both possible after the meeting, investors are careful and tend to believe in the continuation of the “cheep” dollar era and the Fed rate stability in the near future. The factor positively influences the crude material price and supports both oil benchmarks.
The trades of current week:
At the time of writing (Wednesday, April 27), both benchmark crude oils are being traded around the 5-month maximum level prior to the Fed meeting results.
Starting from Monday, Brent crude oil shows the increase by $1.65 per barrel and reaches the $46.55 level. The maximum growth was noticed on Tuesday evening (April 26), when investors started selling the US dollars actively. WTI Crude oil reacts in the similar way: it is traded at $44,88 level, near the key level of $45. The US crude oil increased by $1.3 from Monday in total.
If the Fed meeting’s results are negative to the US dollar, both oil benchmarks may show the increase by 1.5-2.5%. The Brent oil target value is $47.25 per barrel, the WYI oil target value is $46 per barrel.
In case of the Fed meeting’s positive results, both benchmark may be traded down; the expected support level for Brent crude oil is around the $44.5 level, and WTI crude oil is supported at $43 per barrel.