GILES COGHLAN

GILES COGHLAN

Is US oil set to test $95?

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Oil has continually found itself being bought on dips over the last few months and that is due to the following reasons.

Chinese demand return

The most often cited reason is that Chinese demand for oil is set to gain rapidly this year as it shakes off it’s strict Covid Zero restrictions. According to the Energy Information Administration China’s daily demand for oil will reach 15M b/d. This will see a return to China’s expanding need for oil after its fall lower in 2022. See below
The return to air travel from China is expected  to be one of the major driver’s of demand over the coming weeks.

World demand increases

According to Bloomberg there is also a return to greater demand from India and other countries. In the EIA’s February report they expect world consumption of oil to rise to 101.9 million b/d.
Opec supply drops
See here for the dip in OPEC’s supply over the recent period:

The headwinds

However, the risks to this upside outlook is that the global economy slows down and higher interest rates reduce demand. Also, if US shale producers can take up some of the supply slack. However, CEO Chevron Mike Wirth told Bloomberg Television in March that US shale production is unlikely to quickly fill that gap. Bloomberg report that research firm Enverus expect shale growth to be around 560K barrels a day for the US. So, in total that makes US shale production around 1.3 million bpd which is well below the 13million+ before Covid.

The Technical outlook

On the monthly chart oil has put in a number of strong monthly candles showing price rejection of the $70 region for US crude. There is also a false break of a harami inside bar on the monthly and a strong hammer reversal bar from December 2022. Technically the return to a $90 target looks exceptionally strong.

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