Oil prices for WTI crude ended the week of March 9 up 1.42% to close at $62.14 per barrel in a late afternoon rally on Friday on news that U.S. President Trump may be prepared to offer more countries exclusions to his steel and aluminum tariffs. On Thursday, prices dipped as low as $60 per barrel in a sell-off that started the day before following the release of the Energy Information Agency's (EIA) official weekly inventory data. Those figures showed an increase in oil inventories for the week of 2.408 million barrels. Inventories have risen in five of the past six weeks, renewing traders' fears that the market remains oversupplied.
On Thursday, March 15, the International Energy Agency (IEA) will release its Oil Market Report with data for the month of February. Traders will be watching closely for signs that the market is coming back into balance. In the previous report, the IEA said that early 2018 was reminiscent of the first wave of U.S. shale growth that allowed producers to make big gains in market share and eventually forced OPEC to defend the oil price with supply cuts. The IEA also said that the upward momentum that drove Brent crude prices toward $70 per barrel has stalled because oil market fundamentals in the early part of 2018 look less supportive for prices.
One of the key data points traders will be looking for is the IEA's oil market demand expectations. In last month's report, the IEA increased global oil demand growth expectations for 2018 to 1.4 million barrels per day on revised economic growth forecasts. These figures are still lower than 2017 demand growth figures of 1.6 million barrels per day. If this 2018 figure is revised up or down, the market reaction could be significant.
An upward revision could fuel the narrative that the market is coming back into balance. OPEC has removed supply from the market, and if demand is rising as well, then support for higher prices should be expected. On the other hand, if demand figures are revised down, then traders should expect prices to trend lower on concerns that U.S. inventories are still rising at a time when U.S. shale is starting to ramp up both oil output and capital spending.
Non-OPEC production is also a concern that traders will be looking for in Thursday's report. Last week, the IEA published its five-year oil market analysis and forecast report in which the agency said that record oil output from the U.S., Brazil, Canada and Norway will keep global oil markets well supplied. In that report, the IEA claimed that gains from U.S. production alone will cover 80% of the world's demand growth for the next three years.
The daily price action in oil is presently neutral using a combination of moving averages and technical indicators. Moving averages are more supportive, while technical indicators remain bearish. For example, on the bullish side, the 21-day exponential moving average remains above the 55-day exponential moving average, while on the technical side, the moving average convergence divergence (MACD) fast line remains below zero after testing and failing at this level on Feb. 26. The broad picture for oil is generally bearish despite Friday's late afternoon rally. Oil is in a bearish continuation pattern, with Friday's bullish candle failing to close above the two previous bearish candles.
Daily prices entered a downtrend in early February and retraced to the 61.8% Fibonacci level by the end of the month. Prices remain in a short-term downward trend channel and are positioned to trade down to the 100% Fibonacci extension at $55.65 per barrel. A close above the end-of-February high of $64.24 per barrel would signal an end to this trade, and a close above the Jan. 25 high of $66.66 per barrel would signal a reversal to the current downtrend.
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 trade advice.