Crude oil price stabilized during the Asian session as participants waited for a response from Saudi Arabia. Yesterday, Mike Pompeo, the Secretary of State, asked the country to help stabilize the oil market. He made the statement as he headed to an important G20 ministers’ meeting. The statement came a day after he talked to Crown Prince, Mohamed Bin Salman.
Mike Pompeo’s pressure to Saudi Arabia comes at a time when oil prices have declined by more than 50% in the past month alone. The decline intensified as Saudi Arabia and Russia moved to boost their supplies after their partnership broke down early this month.
In response, oil traders have had to deal with the intersection of the lowest decline of oil demand in history and a significant increase in supplies. In fact, as I wrote on Monday, the world is running out of oil storage facilities. Some of the biggest oil storage companies like Vitol and Magellan have warned that storage facilities would run out in less than six months if the current dynamics remain.
There was some relief yesterday after the Energy Information Administration (EIA) released the inventories data. The numbers showed that inventories rose by 1.63 million barrels in the past week. Although large, the inventories have been on a downward trend in the past three weeks.
The challenge for Mike Pompeo is that Donald Trump seems to be a proponent of low oil prices as shown in the tweet below.
Looking at the weekly chart, we see that Brent crude oil price is finding support at the same level it was on January 18, 2016. The price is also significantly below the 50-day and 100-day exponential moving averages while volatility, as measured by the Average True Range (ATR) is at a multi-year high. There are two main scenarios to watch out. First, Saudi can pledge to cut production to please the US, and the price will skyrocket to about 35. Second, Saudi can stay silent, which will push the pair to test its YTD low of 24.50.