blog

Latest from the Quantamize Blog

Rise like a gusher or just dribble lower? Mixed Economic Data Clouds Outlook for Oil prices

Apr 18, 2019

Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions
Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions

 

  • WTI Crude Oil has rallied 40.50% YTD as demand has remained stable while the Organization of Petroleum Exporting Countries (OPEC) squeezed supplies, however, an outlook for the commodity will likely remain clouded until we move well into May. Today, WTI Crude Oil is up 0.06% to $63.80/bbl.  
     
  • WTI Crude Oil rallied through most of 2018 until it began to crash on in October. From its high of $76.41/bbl on 10/03/2018, WTI Crude Oil depreciated 44.54% to a low of $42.53/bbl on 12/24/2019. Since then, WTI Crude Oil has rallied 40.50%, as can be seen below.

 

 

  • The rally in WTI Crude Oil this year has been driven mainly by OPEC production cuts. After OPEC concluded in early December that there was a crude oil supply glut, the organization enacted a 1.2 million bbl/day production cut to begin in January and last for 6 months. This production cut has placed upward pressure on the price of crude oil.  
     
  • Crude oil supplies have been further squeezed this year due to unforeseen crises in major oil-producing nations Venezuela and Iran. Both countries are the victims of US sanctions that have made outputting crude oil difficult.
     
  • Despite the crises in Venezuela and Iran already squeezing crude oil supplies this year, OPEC announced in February that crude oil output would fall even further this year due to a slash to production by Saudi Arabia, the second-largest oil producing nation in the world behind Russia.
     
  • The rally in crude oil began to slow over the last couple of weeks, however, as uncertainty surrounding the global economy has clouded the demand outlook for crude oil. Earlier in April, the International Monetary Fund forecasted that global economic growth this year will be the weakest in a decade, suggesting that demand for crude oil will weaken as we move through 2019.
     
  • Weak Eurozone economic data this weak also suggested that crude oil demand will cool in 2019. This week, the Purchasing Managers’ Index, a metric that measures private-sector activity in the Eurozone, surprisingly fell in April while German factor data came in lower-than-expected.
     
  • More recently, however, US economic data suggests that strength in demand for crude oil will continue in 2019. Since the US Fed initially turned dovish in late March, the US has announced stronger-than-expected industrials, manufacturing, and retail sales data. The stronger-than-expected US economic metrics signals a generally strong US economy, which should drive growth and continued demand for crude oil.
     
  • The outlook for crude oil will likely receive some clarity as we move into May. According to Sumitomo Corp. Global Research Senior Analyst Kei Kobashi, the expiration of waivers for US sanctions on Iran paired with an OPEC meeting that will occur in May will help investors understand the production outlook for crude oil going forward.
Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS
Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS