the world’s largest oil producers, Saudi Arabia, was considering an output increase.
The sudden drop of WTI came after the WSJ reported that Saudi Arabia was planning to increase its oil production by more than 1 million barrels per day, fueling concerns that the global oil market would be flooded and the already low prices would slide further. WTI, the benchmark for American crude, fell to $61 per barrel on the news.
However, Saudi Arabia quickly refuted the WSJ report and assured the market that it had no plans to increase its crude oil production anytime soon. In addition, the Organization of the Petroleum Exporting Countries (OPEC) and its allies had just decided to extend their production cut agreement, which would help balance the market and support oil prices. As a result, WTI rebounded and closed at $66 per barrel, up more than 3% for the week.
The WTI’s uptrend was further supported by the ongoing vaccine rollout and hopes for a global economic recovery. As more people get vaccinated, travel restrictions ease, and businesses reopen, the demand for oil could rise, especially in the transportation and manufacturing sectors.
Moreover, the recent stimulus package passed by the US government could inject more than $1.9 trillion into the economy, which could boost consumer spending and increase the demand for oil and other commodities. The package includes direct payments to qualifying Americans, extended unemployment benefits, funding for small businesses, and infrastructure investments.
However, some analysts are still cautious about the oil market’s outlook, as there are still uncertainties around the pandemic, the global economy, and the geopolitical tensions. The emergence of new COVID-19 variants and the slow vaccine distribution in some regions could prolong the pandemic’s impact and delay the economic recovery.
Furthermore, the US shale producers could return to the market if prices continue to rise, which could increase the supply and put pressure on prices. The US shale industry, which was hit hard by the pandemic and the oil price war between Saudi Arabia and Russia last year, has been reducing its production and improving its financial position, but it could ramp up again if the conditions are favorable.
In addition, the geopolitical risks in some major oil-producing countries could disrupt the supply chain and affect the market. For example, the tensions between the US and Iran, the conflicts in Libya, and the uncertainties in Venezuela could lead to production disruptions and supply shortages.
Despite these challenges, many experts believe that the oil market could recover gradually in 2021, as the demand picks up and the production cuts continue. The International Energy Agency (IEA) recently raised its oil demand forecast for this year by 100,000 barrels per day, citing the improving economic outlook and the vaccination efforts.
Moreover, some bullish investors are betting on the possibility of a supply shortfall in the coming years, as the major oil companies have been cutting their capital expenditures and exploration budgets in response to the lower prices and the growing pressure to transition to clean energy. This could lead to a supply gap in the future, especially if the demand for oil remains strong in some sectors, such as aviation, shipping, and heavy-duty transportation.
Therefore, the WTI’s uptrend could continue in the near term, albeit with some volatility and corrections along the way. The technical charts show that WTI has broken above the key resistance level of $65 per barrel and is now testing the next resistance at $68.50 per barrel. If it manages to surpass this level, it could target the previous high of $73 per barrel in the coming weeks.
However, traders should also keep an eye on the fundamental factors that could affect the oil market, such as the OPEC+ decisions, the US shale production, the pandemic developments, and the geopolitical risks. As always, it is important to have a diversified portfolio and a risk management strategy in place to handle the market uncertainties and minimize the potential losses.
In conclusion, the WTI’s recent uptrend has been driven by a combination of factors, including the Saudi Arabia’s denial of output increase, the OPEC+’s production cut extension, the vaccine rollout, and the stimulus package. While there are still some challenges and risks in the oil market, the general sentiment is cautiously optimistic, and the WTI could continue to climb higher in the short to medium term.
