The oil market is having a good year. YTD, the price of West Texas Intermediate (WTI) and Brent crude has soared by more than 25% and 28% respectively. This has happened for a number of reasons.
First, the US and China have been talking with the goal of eliminating the trade tensions that have been around for more than a year. While no concrete deal has been signed, traders are optimistic that a deal could happen within a short period of time. If such a deal happens, it could provide a pivot to the world economy, which is forecasted to slow down this year[. As this happens, it will likely lead to more demand.
Second, Venezuela has been in upheaval. This year, the US administration, together with other Latin America and European countries have recognized the country’s parliamentary leader as the president. This has led to a major crisis in the country. It has also led to increased sanctions from the United States. These sanctions have helped prevent the country from selling crude internationally. This is important because Venezuela has the biggest oil reserves in the world.
Third, the US has not been producing as much oil as many people expected. While the country remains the biggest oil producer, recent data shows that the activity is slowing down. Just yesterday, data from the Energy Information Administration (EIA) showed that the inventories declined sharply by more than 3.8 million barrels. This was higher than the increase of more than 2.6 million that traders were expecting.
Fourth, in recent weeks, there have been some street demonstrations in Algeria, which is an OPEC member and a large supplier of oil to Europe. The citizens have been demonstrating after the president announced that he will run for the position again. This was seen as a scheme by powerful people to remain in power. However, these demonstrations have had no major impact on the shipments.
The price of Brent crude rose sharply to a high of $67.70. This was the highest level this year. In the chart below, this price is above the short and medium-term moving averages. The RSI has moved to the overbought level. There is a likelihood that the upward momentum will continue until OPEC members meet in April.