Hi YXI friends,

Welcome to our fortnightly update on Oil. Today, we will review Oil’s near term outlook, including the impact of OPEC+ supply and the price technicals.

We provide a detailed review of Diamondback Energy (FANG)’s latest earnings, valuation, and price action.

We also introduce Brookfield Renewable Partners as a hedging candidate for trading USO, as well as its own merit as an investable business.

Finally, we have a technical analysis review of SLB’s price action.

Let’s dive in!

Table of Contents

• 1. OPEC+ To Increase Supply In April

• 2. Diamondback Energy (FANG) Earnings Review

• 3. Brookfield Renewable Partners (BEP)

• 4. SLB Technical Analysis

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. OPEC+ To Increase Supply In April

According to the IEA’s February report, global oil supply is on track to increase by 1.6 mb/d to 104.5 mb/d in 2025, compared with a projected demand of 103.9 mb/d. This supply-side imbalance already assumed the OPEC+ voluntary cuts remain in place.

Currently, OPEC+ nations have over 5 mb/d of spare capacity, which they have refrained (officially, anyway) from deploying in order to keep oil prices high. However, This week, OPEC+ have announced they will start increase of 138k barrels a day in April.

While this announcement was in line with their December postponement, it caught the market by a slight surprise, which had anticipated another production delay. This is because in addition to the oversupply factor mentioned above, the current oil prices are trading near the lows of 2022-2024. It seems that OPEC+ could be doing this as a diplomatic response to Trump’s request.

Responding to the announcement, both WTI and Brent dropped by over 2% on Monday.

Inventory vs Price

As the largest exporter, US crude oil inventory also has a big influence over oil prices. The January USO price spike coincided with falling US crude oil inventory levels. The latest surge in crude inventory is also met with falling oil prices.

Currently, the inventory levels are near the two-year-high levels, suggesting less room for growth. This could help putting a floor on oil prices near-term.

WTI Futures (March 5, 2025)

WTI oil futures remain in a downward sloping curve, known as backwardation. (The shape of the curve depends on the cost of storage plus interest rate, less the convenience yield for future deliveries.)

Backwardation typically indicates relatively tighter oil supply in the near term (or greater demand), but traders expect the market to loosen over time in terms of supply.

This forward expectation is in line with the supply-demand picture we analysed above.

USO Daily (https://www.tradingview.com/x/PhXvkKRw/)

For USO, the price technicals have struggled in its upwards momentum since February. There are 3 important levels to watch:

1) Near term, USO is still trading above the orange support trend line, but can move as low as $70 where wave c equals wave a in length for wave (iv) pullback. Falling further below the wave (ii) low of $69 invalidates the counts.

2) Overhead, the blue dotted line at $83 has served as an important resistance area since September 2023. USO briefly broke above but retreated from this level in January.

3) Finally, my expectation for wave (v) is still in the $90+ region, which is the 1.382 inverse extension of wave (iv).

These parameters actually create a favourable risk-reward long trade setup from a price technical perspective, although if you asked a main street analyst, they would probably be cautious buying here due to the fundamentals.

The dark horse here is China. China is still the largest source of demand growth for oil. Therefore, watching how China’s government stimulus and US tariffs unfold, which we do in this service, could provide key insight for oil market too.

2. Diamondback Energy (FANG) Earnings Review

Diamondback Energy enjoyed a strong Q4 to finish 2024.

Claim Your 7-Day Free Access To YXI Premium