Crude oil price rose today as the market reacted to improved momentum on supplies and demand. The price of Brent rose to a high of 33.70 while the West Texas Intermediate (WTI) rose to above $30 for the first time in two months.
US crude oil inventories slide
Part of the reason why crude oil price rose today is that oil producers have continued to slash their wells. On Friday, data from Baker Hughes showed that the total number of oil rigs declined to a record low of 258. This is an important number because rigs have been on a downward trend since 2018, when they peaked at almost 900. However, the decline has accelerated since December when they peaked at more than 670.
Crude oil prices rise as countries reopen
Another reason why crude oil price is rising is that demand is expected to rise as more countries reopen. Media reports suggest that traffic is starting to increase in many countries like the United States, China, and Europe. Indeed, according to Bloomberg, the amount of crude oil being stored in tankers has started to decline. The report cited the fact that North Sea oil traders offered about 8 million barrels for sale. Most of these cargos were those stored at sea and is an indication that demand is rising. However, the challenge is that most overseas travel won’t come back any time soon as countries fight the disease.
Just last week, the International Energy Agency (IEA) said that oil demand will not be as dire as it had predicted earlier on. Also, in an interview with Bloomberg, OPEC secretary general said that the members had started to see improved demand.
Oil rallies ahead of June expiry (judgement day)
Surprisingly, crude oil price is soaring a day before the expiry of June delivery. As you recall, the price turned negative last month ahead of the May supplies delivery. An analyst told Reuters that:
“There’s clearly a different feel to the oil market heading into this contract expiry, with production cuts having been enforced globally, either through deals or unilaterally.”
On the daily chart, we see that the Brent crude oil price has been rallying since last month. The price has just moved above the 50-day exponential moving average and is slightly below the 38.2% Fibonacci retracement level. The price has also entered the Ichimoku cloud. Therefore, there is a possibility that the upward trend will continue as bulls attempt to test the 38.2% retracement at 37.00.
On the flip side, a move below 28.8 will invalidate this trend. This price is along the 23.6% retracement level and the important support between May 5 and 14th.