By Walter de Wet
With the Fed’s decision to keep monetary policy accommodative, the bias remains in favor of a higher crude oil price.

US DOE crude and product inventory data: in the headline numbers, we saw a drawdown in gasoline and distillate inventories last week. With increasing attention on gasoline, and less on distillates as we head into spring in the northern hemisphere, another draw in gasoline could see WTI retest the $84/bbl level.

An inventory draw in Cushing could assist to push prices higher. Expectations are for a 1,1m bbls build in crude inventory, while product inventory should decline by 1m and 1.3m bbls for gasoline and distillates respectively.

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We remain wary of the rise in speculative length. Non-commercial net long positions reached 10.4% of open interest (OI) in January before prices declined from $84 to $70. Average speculative length as a percentage of OI over the past two years was only 4%. Currently, speculative interest stands at 8.1% of OI — up from 7% last week.

While we believe the global economy is recovering, we believe there could be a correction before the next move higher for crude. WTI front-month support is at $80 and $78.30, resistance at $83.50 and $84.00.

The focus is on OPEC. As the oil price has increased, OPEC’s compliance with its officially targeted cut of 4.2m bpd has slipped to just 53% of this amount. Based on forecasts from tanker tracker Oil Movements, OPEC’s crude oil shipments are expected to fall to 23.20m bpd in the four weeks to 27 March, down from 80k bpd to 27 bpd.

Courtesy: Standard Bank

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