Crude oil prices were in for a bumpy ride last week, as surprising comments from Saudi Arabia helped to keep the bullish momentum going. Oil prices were already surging strongly earlier in the week following tensions surrounding Syria and the attempted missile strikes against Riyadh.
While the markets at large brushed aside the weekend airstrikes in Syria by the United States and its allies, the fact the situation did not escalate pushed investor risk appetite higher. Still, crude oil prices managed to maintain the gains.
Last week the market saw the, WTI Crude Oil rises due to bullish Saudi price target; where one of the top exporters of crude oil expressed their preference for crude oil prices to be closer to $100 a barrel.
Oil prices jumped nearly 3% on the day following the comments. Overall, for the week, WTI Crude oil prices rose to intra-week highs of 69.53 before closing lower by end of Friday’s trading session.
Saudi Arabia which had previously orchestrated the decline in crude oil prices in a bid to squeeze out the shale oil competition from the market was seen turning hawkish.
With oil prices falling to historic lows, the effects of lower oil prices were felt across most of the oil producing nations including Saudi Arabia and Russia. OPEC and Russia agreed to curb oil production in a bid to stabilize prices.
By Wednesday’s close, Brent crude prices rose 2.7% to close at $73.48 a barrel. The WTI crude oil also gained nearly 2.9% to close at $68.47 on the day.
Saudi Arabia said that it would be happy to see crude oil prices rise to $80.00 or even to $100.00 a barrel. The comments signaled that OPEC is likely to follow through and stick to the plan of limiting production.
Crude oil prices also jumped with the weekly crude oil inventory report. Data from the U.S. Energy Information Administration showed that there was a bigger than expected draw in crude oil inventories.
The official report showed that crude oil inventories fell 1.1 million barrels. This came largely on account of a decline of nearly 1.3 million barrels per day in the net crude oil imports.
The EIA’s report showed a drawdown after previously there was a strong build up in the inventory report which kept crude oil prices subdued. Contributing to the drawdown was a significant rise in demand for gasoline. Crude oil exports were said to have fallen to 1.75 million barrels per day.
The reversal in the inventory report was a welcome change after the EIA’s report showed a strong week over week decline since late November last year.
The bullish fundamentals coincided well with the comments from Saudi Arabia. Investors have often speculated on how long OPEC and Russia would continue to maintain the current limit on production.
Last week’s comments helped investors to get more clarity as it is now widely understood that OPEC members will continue to maintain production cuts by 1.8 million barrels per day, which has been in effect since January 2017.
Crude oil prices are likely to gain support with the ongoing tension in the Middle East. Other factors that weigh on investors’ minds include the potential for the United States to re-impose sanctions on Iran and the crisis in Venezuela which could further hit production.
Although price of WTI Crude oil pushed higher during the week, we expect to see another decline to the downside in the near term. The resistance level at 65.8 – 65.50 that was previously breached is expected to be tested for support to the downside.