WTI got sold off sharply last night to drop to as low as $27.7/barrel, just shy of January low, raising fear that WTI might drop further leading more defaults in the sector.
Key factors at play in Crude market
- OPEC remains so divided due to rivalry between Iran and Saudi Arabia, which they couldn't agree to even a joint meeting. Saudi Arabia has pointed out that oil declines, every time OPEC meets and no decision comes out.
- Venezuela is trying to unite members of OPEC like Saudi Arabia and non-OPEC country like Russia to agree on production cut. So far that remains out of reach.
- US lawmakers passed bill to lift 40 year oil ban on US crude export.
- Russia's Rosneft played down any chance of a production cut, despite second largest producer LukOil indicating production.
- Latest IEA report shows, supply demand imbalance likely to be larger than it had expected in 2016. Non-OPEC production likely to drop by 600,000 barrels in 2016 but that would be compensated by similar increase from Iran.
- American Petroleum Institute's (API) weekly report showed inventory rose by 2.4 million barrels.
- Oil price is down, however lack of investments in the sector make prices vulnerable to supply shocks in future.
Today's inventory report from US Energy Information Administration (EIA), to be released at 15:30 GMT.
Trade idea
- We at FxWirePro remains committed to downside, price action suggests further drop in prices. Goldman Sachs has called for $20/barrel oil, while Standard Charted called for $10/barrel and EIA, $5/barrel.
- According to our calculations, next targets for oil are $22 and $20.3/barrel.
- WTI-Brent spread could widen over lower demand of US crude. It is currently at $2.5/barrel.
