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Crude Oil Charts Show That Oil Prices Might Repeat the 2009 Rally

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US oil rig counts decline

The US oil rig count fell to a six-year low, according to Baker Hughes’ sources. The oil rig count fell by 26 to 734 for the week ending April 17, 2015. The active oil rig count was at 760 for the previous week. The rig count is 51% lower than last year. It had a weekly decline of 3.4%.

The rig counts are continuously falling. In the latest EIA (U.S. Energy Information Administration) report, it showed that weekly US crude oil production declined by 20,000 bpd (barrels per day). The EIA’s monthly drilling productivity report also forecast a decline of 57,000 bpd in May 2015.

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US inventories slowing down

The EIA released the weekly crude oil report on April 15, 2015. The data showed that US commercial crude oil inventories rose by 1.02 MMbbls (million barrels). This was the lowest inventory increase since January 7, 2015. The market estimated an increase of 4.05 MMbbls. Weekly oil stock piles increased to 483.7 MMbbls from 482.4 MMbbls for the week ending April 10. Declining US production and slowing inventories could support oil prices.

The nearest resistance for oil prices is at $66 per barrel. Prices hit this mark in May 2015. WTI (West Texas Intermediate) crude oil is trading above its 100-day moving average of $53.96 per barrel. However, the RSI (relative strength index) is in overbought territory. Prices tend to fall from these levels.

Increasing production from OPEC (Organization of the Petroleum Exporting Countries) and the strong dollar will continue to put pressure on oil prices. The key support is formed at $52 per barrel. Prices hit this mark on April 13 and 14. A Bloomberg surveys suggests a bearish week for crude oil. The charts suggest that WTI might repeat the 2009 rally. Demand could increase from China. This would also support oil prices. China is the world’s second largest crude oil consumer.

The economic stimulus program from China and the interest rate cut could support the oil market. It’s under a credit crunch situation due to lower oil prices. China is a key lender to oil exporting economies. Lower oil prices would increase the demand for oil in the near term from economies like India.

Lower oil prices negatively impact oil ETFs like United States Oil Fund LP (USO). In contrast, lower oil prices positively impact oil refining companies’ profitability—like Marathon Petroleum (MPC), Holly Frontier (HFC), and Western Refining (WNR). They account for 3.82% of the SPDR Oil and Gas ETF (XOP).

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