Crude Oil Helps Lead the Commodity Sector Higher

WTI Crude Oil has had a tremendous start to the year gaining over 37% while the global benchmark Brent crude has gained 30% so far.  Prices have been rising due to tightening global supplies and increasing global demand.  The front-month of Brent Oil ticked over $70.00 a barrel on Thursday’s trade, its highest level of 2019.  While the U.S. production has been rising, expectations of tight supply on a global level have been leading Brent prices higher.

WTI production from West Texas will increase by 2 million barrels a day in 2019. Oil companies that own land in the Permian Basin (which is primarily in Texas, with New Mexico having a small portion) have drilled over 114,000 wells over the past decade that are profitable with WTI prices as low as $30.00 a barrel.

This, of course, is bad news for OPEC because they need a higher price for oil on average than U.S. producers do.  Mike Loya, the president of Vitol Group Americas, said, “The Permian will continue to grow and OPEC needs to learn to live with it.’’ Vitol is the world’s largest independent oil-trading house. Crude Oil has also been supported by an agreement between OPEC and Russia to reduce crude output by 1.2 million barrels per day in 2019.

Brent Oil futures peaked in 2018 at a high of $86.69 in the third quarter.  After this peak, Brent Oil spent the next three months pulling back almost 50% from its highs down to $44.95.  After spiking lower in December of 2018, the market began to firm up to close the year out.

Brent futures have had a strong start to the year thus far. In January, Brent broke above the downtrend it started from its highs made in 2018. Shortly after, Brent traded to and above its 100-day Moving Average.  Currently, the Brent futures are finding some resistance around the $70.00 price level and the 200-day Moving Average.

The American oil industry, particularly in the Permian, has made a big enough impact on the oil industry to keep OPEC on its toes. With the prices of crude oil being at the highs of the year, the Permian producers are making a lot of money with WTI prices sitting currently at $62.20.  For future updates on Crude Oil, investors should look towards the next OPEC meeting on April 17th in Vienna, Austria.

 


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