Oil price is strong despite headwinds

West Texas Intermediate (WTI) crude oil broke above resistance levels this week despite multiple bearish fundamentals that could have pushed the petroleum complex down. During the week, Saudi Arabian Oil Minister Ali al- Naimi said the kingdom could boost output by as much as 4.5 million barrels a day once global demand recovers from the economic recession. He also stated that Prices in the $70-a-barrel to $80- a-barrel range are “as close to perfect as possible.” Although quotas have been stable, OPEC has raised total output by 55 thousand barrels per day to 26.84 million barrels per day, the highest since December 2008 and 1.995 above their target. Overall compliance from OPEC nations is approximately 53 percent and none of the members has produced at target rates.

In oil news out of the US, the Obama administration announced that it would begin to allow drilling off the coast of the eastern seaboard of the United States. The administration has contemplated this issue for a while, and the left side of the Democratic Party has fought this vehemently. Additional drilling will add more barrels to a market that is already oversupplied.

On Wednesday, the Department of Energy released its weekly inventory numbers. U.S. commercial crude oil inventories increased by 2.9 million barrels from the previous week. At 354.2 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of the year. Total motor gasoline inventories increased by 0.3 million barrels last week, and are above the upper limit of the average range. The expectations prior to the release of the report were for a small build of crude oil inventories of approximately 1 million barrels. After last week’s large 7 million barrel increase, analyst had expected some type of snap back. None of this news seemed to affect the price of WTI crude oil. Crude oil broke through the top end of a $70-$84 range to close the week at $85.20, which is a 52-week high. The message until price action turns, do not fight the market.