Light crude oil futures rose on Thursday, driven by technical momentum and optimism over China’s economic stimulus. Prices rose after Monday’s bullish crossover of the 50-day moving average, establishing support at $69.11. Traders are targeting resistance near $71.10, with gains potentially accelerating towards $72.43 on a breakout.
Light crude oil futures are trading at $70.52, up $0.42, or +0.60%. The 50-day moving average at $69.11, now a key support level, coincides with the 61.8% long-term retracement at $68.69. Resistance is at $71.10, in line with the 50% long-term retracement. A break above this level could push prices to the 200-day moving average at $72.43, signaling a shift to a longer-term uptrend.
China fiscal stimulus fuels market optimism
Investor sentiment received an additional boost from reports of fresh fiscal stimulus measures in China. Chinese authorities plan to issue 3 trillion yuan ($411 billion) in special treasury bonds next year, aiming to stimulate economic growth. As the world’s largest importer of crude oil, the health of China’s economy weighs heavily on the outlook for global demand. Traders are betting on increased fossil fuel consumption as economic activity recovers, providing another layer of support for crude prices.
US inventory decline adds to bullish sentiment
Oil prices found further support from US inventory data. The American Petroleum Institute (API) reported a 3.2 million barrel drop in crude inventories last week.
Market participants are awaiting confirmation from the official Energy Information Administration report, due on Friday, which could boost bullish sentiment if it matches or exceeds expectations. Analysts expect crude inventories to fall by 1.9 million barrels, along with a decline in gasoline and distillate inventories.
OPEC+ has limited ability to significantly push oil prices higher
OPEC+ cannot significantly push oil prices higher. Speaking to CNBC, Hari noted that although the oil-producing cartel has managed to stay united despite market speculation, its power to influence prices beyond a certain point remains limited.
According to Hari, while the cartel has successfully managed to hold together despite market speculation, it does not have the ability to significantly push oil prices higher.
“With OPEC+, we’ve had three delays to unwind 2.2 million barrels a day. What that tells me is that OPEC+, despite all the talk of market speculation, has managed to hold together.”
In 2016, OPEC teamed up with other major non-OPEC oil-exporting countries to form a more powerful group called OPEC+, or OPEC Plus. The OPEC+ group has cut production to support prices. However, Hari stressed that while OPEC+ has shown patience in managing these cuts, the cartel’s ability to push prices higher remains limited.
She added, “The eight members cutting these 2.2 million barrels per day are showing a willingness to be patient.”
OPEC+ strategy: Stabilizing prices around $70 a barrel
Looking ahead, Hari suggested that OPEC+ will likely continue to pursue a cautious strategy, focusing on maintaining a price floor rather than pushing prices higher.
“In my own view, OPEC+ will remain patient,” she said. “I think they will try to put a floor or maintain a floor around $70 for Brent. I think that’s the most they can do or the least they can do from their perspective. They really don’t have the bandwidth to support prices much higher.”
US Oil Production Outlook and Limited OPEC+ Influence
While OPEC+’s actions capture much of the market’s attention, Hari also discussed the outlook for US oil production. Despite ongoing speculation about potential changes in US energy policy, particularly with the incoming administration of President-elect Trump, Hari noted that there is little impact on the decisions US producers make regarding capital expenditures and drilling.
“[US President-elect] Trump has had very little impact on US producers’ decisions about how much capital expenditures they are going to invest, where they are going to invest, how much they are going to really go into technology and then drill more wells,” she noted.
Hari noted that US oil production this year has grown by about 300,000 barrels per day, a sharp decline from last year’s growth of about 1 million barrels per day. Hari explained that the slow pace of growth will continue, with next year’s forecast predicting a similar increase in production. “Next year’s forecast is also about 300,000 barrels per day,” she said.
Global oil production growth outside the US
Hari also pointed to growth outside the US, where a number of other countries are expected to increase their oil production. “Of course, it’s very price sensitive. We have to take that into account. So as long as WTA supports well above $65 or around $70 a barrel, that’s what we’ll see,” she said.
Apart from the US, countries such as Canada, Brazil, Argentina, and Guyana are expected to increase oil production.
These countries, along with others, are likely to contribute to the global supply of oil, affecting price dynamics in the coming years.
While OPEC+ continues to exercise some control over oil prices, the group’s ability to significantly influence the market beyond the $70 a barrel price floor appears limited.
