• WTI reduces losses to US$0.15 from as much as US$0.78. U.S. WTI crude futures tumbled as much as US$0.78 to US61.45, driven by fears of rising U.S. shale production amid an uptick in U.S. oil rigs while Saudi’s ramped up in diesel and gasoline exports to a record in January.

• Geopolitical tensions heighten. However, WTI managed to reduce the losses to US$0.15 or 0.24% at US$62.19 amid speculation over the fate of Iran’s nuclear deal (which allowed Tehran to boost oil production) following the firing of U.S. Secretary of State Rex Tillerson last week. The former secretary of state had been an advocate of the deal but his new replacement Mike Pompeo has long shared President Donald Trump’s view that the agreement should be scrapped. Last week’s remarks by Saudi Arabia’s Crown Prince Mohammed bin Salman added to geopolitical tensions after he warned that his country would seek to develop a nuclear bomb if Iran did.

• Slower production in Feb. Meanwhile, oil prices also remained supported after a report from the International Energy Agency (IEA) last week showed that supply from the OPEC moderated in February on a drop in production from Venezuela, as its output slid to 1.55m barrels a day in February, down 60,000 barrels m.o.m, and 540,000 barrels a day y.o.y, and the agency also forecast an increase in global oil demand this year.

• …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. Last Friday, oil-field services firm Baker Hughes reported that the number of drilling rigs operating in the U.S. rose by four, bringing the total count to 800. It was the seventh increase in the rig count in eight weeks.

• 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.

• Potential triangle breakout? 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 7% to end at US$62.2 yesterday. Given the formation of long-legged Doji (daily chart) and uptick in indicators, we remain cautiously optimistic of a potential triangle breakout in the near term, as the uptrend still has legs as buyers continue to defend the US$60.1 (23.6% FR) support. On the upside, a successful assault above US$64.3 (78.6% FR) will lift prices higher to revisit 52-week high at US66.7.

Source: Hong Leong Investment Bank Research - 26 Mar 2018