• WTI jumped 3% wow and 9.4% YTD. U.S. West Texas Intermediate (WTI) crude futures for April delivery tacked on US$0.78 or 1.2% to US$63.55 last Friday to score their 2 nd consecutive weekly gain (+3% wow), amid growing optimism that rebalancing in crude markets are well underway thanks to OPEC-led production cuts. The commodity was also boosted following news of a drop in Libyan output due to the shutdown of the El Feel oilfield, which produces 70,000 barrels per day (bpd) of crude.

• OPEC says oil markets are rebalancing... Sentiment was boosted by upbeat comments from Saudi Energy Minister Khalid al-Falih that the oil markets are rebalancing and inventories to continue to decline in 2018. To recap, the OPEC, along with some non-OPEC members led by Russia, have been restraining production by 1.8m bpd (will expire end 2018) to curb the market of excess supply.

• …but risks remain from US shale extraction. However, fears that rising U.S. output would dampen OPEC’s efforts to rid the market of excess supplies prevented prices from rising much farther. The number of oil drilling rigs rose by 1 last week to 52 oil rigs, putting the total at a nearly three-year high of 799. On the other hand, the shale extraction, held steady at an all-time high of 10.27m bpd last week, keeping it above Saudi Arabia's output levels and within reach of Russia (biggest crude producer).
• This week, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday (by American Petroleum Institute)/Wednesday (US Energy Information Administration) as well as oil rigs count on Friday (Baker Hughes) to gauge the strength of demand in the world’s largest oil consumer and how fast output levels will continue to rise.
• Uptrend resumes amid bottoming up signals. After sliding 14.8% from YTD high of US$66.7 on 25 Jan to a low of US$58.1 on 9 Feb, WTI rebounded strongly to end at US$63.6 last Friday. Foll owing the strong weekly gains and bullish technical oscillators, we believe the uptrend still has legs as buyers continue to defend the US$60 (23.6% FR) psychological support. On the upside, a successful assault above US$64.7 (78.6% FR) will lift prices higher towards our ST and LT targets at US66.7 and US$72, respectively.

Source: Hong Leong Investment Bank Research - 26 Feb 2018