Oil prices suffered an early morning hit after a report showed that U.S. retail sales fell 1.2 percent

Recap: After rising for the third straight session, oil prices suffered an early morning hit after the U.S. Commerce Department released a report showing U.S. retail sales fell 1.2 percent, the largest decline since September 2009. Brent, which rose to a fresh high for the year, fell 2.3 percent to a session low of $63.81, while WTI for March delivery slipped 2.9 percent to a low of $53.08. Prices bounced off of their lows after stock markets trimmed losses and from investor optimism that the U.S. and China would reach a trade agreement. March WTI rose back above $54.00 a barrel, to settle at $54.41, up 51 cents, or 0.95 percent, while April Brent topped $64.00 a barrel, to settle at $64.57, up 96 cents, or 1.51 percent.  March RBOB added 3% to $1.509 a gallon and March heating oil rose 1.7% to $1.972 a gallon. Both products saw the highest front-month contract settlements since November 2018.

Technical Analysis: The technical outlook for WTI remains neutral, with expectations for continued sideways trading, with a slight tilt to the upside. The nearest upside objective would be $56.21, the 38% retracement of the range set by the October 2018 high of $77.86, and the December 2018 low of $52.82. Resistance is set at the psychological level of $55.00 and above that at $55.75. Support is set at $53.68, the current 10-day moving average and $50.94.

Fundamental News:  Russia’s Energy Minister, Alexander Novak, said that there are risks for global oil markets from the political crisis in Venezuela, yet there are no proposals to reverse the global oil output cut agreement between OPEC and non-OPEC producers.  He said Russia has cut its output under the pact between OPEC and non-OPEC producers by 80,000-90,000 bpd from its level in October. 

Bank of America Merrill Lynch said Brent crude oil prices should average $70/barrel in 2019 in light of the fall in OPEC supply.  It sees Brent crude prices averaging $50 to $70/barrel through 2024.  It said total average US oil and liquid supply is projected to grow from 15.5 million bpd in 2018 to 21.9 million bpd in 2024. 

BP said global demand for renewable power will increase at an unprecedented pace over the coming decades, while China’s energy growth is seen sharply declining as its economic expansion slows.  China is set to remain the largest energy consumer into 2040 although India should overtake it in terms of demand growth beginning in the next decade.  BP estimates that global energy demand will increase by about one-third by 2040.  It expects oil demand to peak in the mid-2030s at 108 million bpd.  BP also stated that the growth in oil supply will initially come from rapidly expanding US shale production, which BP expects will increase by 6 million bpd over the next ten years, peaking at 10.5 million bpd in the late 2020s.  As US shale production declines, production from OPEC producers will take the lead.

While OPEC and non-OPEC producers begin implementing the output cuts they agreed in December, the world’s need for their crude is declining further, suggesting that they will need to extend the deal through the second half of the year.  The latest forecasts from the IEA, EIA and OPEC, show the need for OPEC crude diminishing as demand forecasts are cut and US supply outlooks are increased. 

Early Market Call - as of 8:00 AM EDT

WTI - Mar $55.06, up 65 cents

RBOB - Mar $1.5308, up 2.19 cents

HO - Mar $1.9956, up 2.41 cents