New York, US (BBN) – Strong OPEC compliance has led to a rally in the Crude Oil market with the group’s “secondary source,” showing a nearly 92 per cent compliance rate from the cuts agreed upon production cuts that OPEC agreed to in late 2016.
Despite the encouraging data regarding reduced supply, the Baker Hughes Rig Count rose by 8 for the fourth straight weekly gain to a total of 591 active rigs in the US, reports DAILY FX.
There has been a credible view passed around that OPEC’s reduction in supply is being countered by the Shale Drillers in North America extending production as Oil remains comfortably above the $50/bbl level.
While we have two competing fundamental developments with a reduction in OPEC production and an increase in US Shale Production, we have stability on the charts that could favor further upside.
The chart shows a polarity zone that once acted as resistance and now appears as price support.
Given the historical developments when OPEC has cut production, which led to a ~565 per cent increase from the 1999 cut and a 156 per cent rally from the late 2008 production cut per Bloomberg, there is a reason to remain very optimistic as the price remains above the Ichimoku Cloud and the Polarity zone.
The Bulls would likely lose their confidence on a weekly close below the Daily Ichimoku Cloud that aligns with the 50 per cent retracement of the November-January rally ($42.23-$55.21/bbl).
A move above the $54.29/31 recent lower-high would encourage the view that wee could soon see Oil break higher.
Another encouraging sign for Crude Bulls is that WTI 2nd-month implied volatility remains at lowest sinceOctober 2014.
From a positive correlation standpoint, USD/CAD remains inversely correlated with USOIL (CAD positively correlated to USOil over 20-days at +0.476) that would show that a breakdown in USD/CAD may also align with a break higher in USOIL.