Oil ended the week with a thud, closing 4.6% lower after China threatened to fight back "at any cost" against new U.S. proposals for an additional $100 billion in trade tariffs. These new tariffs come on top of $50 billion worth of tariffs announced by the Trump administration last month. This week's losses mean oil is now up just 2.7% for the year after having been up nearly 9.5% in January. Oil was not the only market to take the hit on Friday. The major U.S. equity indices all ended down more than 2% on rising trade tensions.
This week, the market awaits several reports from energy market watchdogs and participants. On Tuesday, we get the U.S. EIA's Short-Term Energy Outlook (STEO), followed by OPEC's Monthly Oil Report on Thursday and the IEA's Oil Market Report on Friday. Market participants will be combing through these reports to find evidence that the global oil supply rebalancing story remains intact.
First up is the EIA's STEO for March. The market will pay attention to adjustments or revisions to U.S. crude oil production estimates. In last month's report, the EIA projected that U.S. crude oil production will average 10.7 million barrels per day in 2018, which will be the highest annual average U.S. crude oil production level ever. This level is higher than the previous record of 9.6 million barrels per day set in 1970. The EIA also forecasts that 2019 crude oil production will average 11.3 million barrels per day. Changes to these estimates could have an impact on the market's supply expectations. U.S. shale oil has been flowing freely, with rising supplies weighing down oil prices.
Next up will be OPEC's monthly oil market report. This is a long report with forecasts and commentary about oil prices, the global economy, and world oil demand and supply, as well as commentary about the oil product and tanker markets. Traders will likely focus on OPEC's demand expectations because these tend to drive the cartel's supply response. Last month, OPEC said that it expects world oil demand to grow by 1.6 million barrels per day in 2018. This would bring total world oil demand to 98.63 million barrels per day. Revisions to these figures could influence expectations about the current pace of oil market rebalancing.
Finally, on Friday, we get the IEA's monthly oil market report. Like OPEC, in last month's report, the IEA forecast global oil demand growth of 1.5 million barrels per day in 2018. At the time, the agency said that provisional data suggest very strong starts to the year in China and India, which taken together account for nearly 50% of global oil demand growth. Traders and investors will be looking for any changes here, especially considering the growing trade dispute between the U.S. and China. It is worth remembering that China is the second largest recipient of U.S. crude oil exports after Canada. EIA data show that, in 2017, 20% of U.S. crude oil exports went to China.
Oil ended the week on a down note, closing below its 55-day exponential moving average as well as below the 50% Fibonacci retracement of the upward price move from early February to late March on the daily chart. The next price support level now sits at $60 per barrel, the big figure where oil consolidated in the first two weeks of March.
So far this year, oil has struggled to break above $67 per barrel. This price level represents the 50% Fibonacci retracement of the downward price move from June 2014 to January 2016. Looking at a monthly candle chart of oil prices, we see three months when this price level was tested, but the market failed to stay there. If market fundamentals weaken, April could shape up to be the first month in 2018 when this price level will not even be tested.
Disclaimer: Gary Ashton is an oil and gas financial consultant who writes for Investopedia. The observations he makes are his own and are not intended as investment or trading advice.