Oil prices are coming off their highs after Kuwaiti oil workers decided to end their three-day strike late on Tuesday. Kuwait News Agency (Kuna) reported that oil workers would return to work on Wednesday morning.
The last leg higher with oil prices was supported by the drop off of nearly half of Kuwait’s average output of 2.8 million barrels per day in March. Another two catalysts were the power outages in Venezuela that hurt out output by 200,000 bpd and a pipeline fire in Nigeria that cut production by 400,000 bpd along with expected refinery maintenance.
We may see oil prices tentatively pullback here, but the longer term trend may still be bullish. Last week, the EIA saw global consumption of petroleum and other liquid fuels to grow by 1.2 million b/d in 2016 and by 1.3 million b/d in 2017.
Price action on the US oil daily chart shows the inability to extend its gains above the 200-day SMA. If we see a deeper pullback price may tentatively drop below the $40.50 level. Deeper support could come from the $35.75 -37.50 zone. A bullish stance may remain in place as long as our trendline in black is not violated. Further upside targets include the $47.00 level.
The trade: Buy US oil at $40.50, with a stop loss at $38.50 and take profit at $46.50. The risk/reward ratio is 1:3