The market was driven by Thursday’s US government data showing a higher-than-expected decline of 2.8 million barrels from domestic stockpiles last week, the fourth week in a row for such draws. Also the tensions in the Middle East after the Islamic State claimed responsibility for a mosque bombing in Saudi Arabia that killed four people added to the market’s support.
Analysts say oversupply in oil markets outside the United States gives little room for a continued rally in spot crude. Organization of the Petroleum Exporting Countries (OPEC) is expected to maintain a collective production target of 30 million barrels per day (bpd). The cartel’s output is more than 1 million bpd above this level and demand for its oil is much lower, leaving a huge supply surplus, estimated by some analysts at more than 2 million bpd.
Now all eyes turn to the Organization of the Petroleum Exporting Countries (OPEC) at its June 5 meeting, where is widely expected not to cut production and prices could see more pressure, especially if the dollar surges again.
Since the beginning of the year oil price rose more than 14.3% and is still in a recovery phase. Last week crude oil initially fell but found enough buying pressure at the 10-week moving average and managed to close in the green near the high of the week, in a wide range week. The stochastic is showing an overbought market but even with the commodity well into overbought territory, we should not fight the strong upward trend just yet.
Expecting upward move to a key level at 70.00 on a break above a key level at 63.70 (scenario 1) or a break below the consolidation zone at 54.42 could throw the commodity to a daily support at 47.78 (scenario 2).
LCrude is a CFD written over Light Crude futures.