We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bearish
USD/JPY
Bullish
Gold
Bullish
Oil - US Crude
Bullish
Bitcoin
Mixed
More View more
Real Time News
  • RT @elerianm: This @FT story--on "US #retailers hit by ‘worst year since 2008’ for discounting"--could be read as the third partial indicat…
  • RT @Schuldensuehner: Just to put things into perspective. S&P500’s all-time high driven mainly by global liquidity which hit an all-time hi…
  • RT @KyleR_IG: * CHINA NOV. RETAIL SALES RISE 8% Y/Y; EST. 7.6% * CHINA NOV. INDUSTRIAL OUTPUT RISES 6.2% y/y; EST. 5% * CHINA JAN-NOV FIXED…
  • Gold Price: XAU/USD Key Chart Signals to end Consolidation- GLD Forecast More details in the link below: https://www.dailyfx.com/forex/technical/home/analysis/xau-usd/2019/12/16/Gold-Price-XAUUSD-Key-Signals-to-end-Consolidation--GLD-Forecast-MK.html?CHID=9&QPID=917714 https://t.co/WUxDroWEBk
  • Positive session so far for equities...#ftse #equities @IGcom https://t.co/m6WsAEBdfn
  • Tune in to @nickcawley1 's #webinar at 6:30 AM ET/11:30 AM GMT to prepare for key UK events and markets in the week ahead. Register here: https://t.co/xewSeUoDaT https://t.co/xV9JF9o763
  • What are a few of the common trading mistakes made by traders? Find out from @WVenketas here: https://t.co/Q3sPmP2rya #tradingstyle https://t.co/sSU5q2ObQm
  • Missed today's Cross-Market Weekly Outlook webinar? See the recording here: https://t.co/d1rb3hCZTH We discussed: - US-China #trade deal - #Brexit outlook after the UK general election - US #Dollar outlook going into 2020
  • European Opening Calls From IG: #FTSE 7392 +0.53% #DAX 13346 +0.48% #CAC 5955 +0.60% #AEX 607 +0.74% #MIB 23509 +0.77% #IBEX 9622 +0.61% #STOXX 3754 +0.61%
  • Traders should know how to confidently approach, enter and exit both Bull or Bear markets. Need some insight into it? Get it from @nickcawley1 here: https://t.co/GhvvFrB3gz https://t.co/IbzSBk5Hb1
Crude Oil Declines after OPEC Meeting

Crude Oil Declines after OPEC Meeting

2014-11-27 19:42:00
John Kicklighter, Chief Currency Strategist
Share:

Since hitting its 2015 peak in June, US crude prices had dropped more than 30 percent to below $75 per barrel through this week. That tumble was violently extended today when an OPEC (Organization of the Petroleum Exporting Countries) meeting ended without a reduction in output from the collective which produces approximately a third of the world’s oil supply.

Despite the steady and painful drop in energy prices heading into the meeting, expectations for a production cut were relatively low. According to reports, a few oil producing countries (including Venezuela and Nigeria) were calling for cuts. However, after the five hour meeting, the majority headed by Saudi Arabia would ultimately keep its production target at 30 million barrels per day.

The market reaction was swift. US-based WTI crude oil futures dropped as much as 8 percent from Wednesday’s close taking out $70 and driving the market to a more-than-four-year low in the process. Brent – the European standard for pricing – would suffer a drop of similar magnitude to comparable historical lows just above $70.

US Crude Oil Prices

Crude Oil Declines after OPEC Meeting

Charting Created by John Kicklighter usingMarketscope 2.0

The dramatic impact to this particular petroleum product would further carry broad ramifications for the entire ‘energy complex’. Natural gas, gasoline, heating oil and other similar commodities from the refined category would see heavy declines on the day. For the technical traders, this drop opens up a new area for analysis. Extending the nearly six-month bear trend this much significantly bolsters the case for a lasting bear trend. While each $5 mark moving lower stands out as a psychological level, heavy levels like $62, $55 and $50 carry in distinct weight.

US Crude Oil Prices

Crude Oil Declines after OPEC Meeting

Chart Created by John Kicklighter usingMarketscope 2.0

From a fundamental perspective, a drop in oil prices theoretically carries straight forward benefit for those countries that are major consumers while burdens those that are producers. While this will generally be the case, there are many complicating nuances. In the United States where a shale boom has significantly added to the supply glut and reduces the country’s import dependency, the drop in per barrel cost will eventually overwhelm exploration and mining investment costs that have been temporarily offset by hedged with a limited life. In Europe, this drop in energy prices will exacerbate – at least in the short-term – the dis-inflation pressures that the region’s policy officials are already trying to correct. In Russia, the hit to this vital revenue source exacerbates sanctions placed on the country by Western nations over the ongoing standoff over Ukraine.

Crude Oil Declines after OPEC Meeting

Chart Created by John Kicklighter using Data from Bloomberg

Further beyond the simple supply-and-demand implications, there is also a market sentiment aspect. It would seem that a drop in commodity prices would lead to freeing up investment capital and thereby a swell in financial market appetites. However, as the chart below shows, this is not typically the case. There is a ‘demand’ aspect that is engrained in oil prices as well, and a sustained drop of this magnitude would insinuate economic health is flagging. Moreover, in a world where various asset classes have enjoyed a highly correlated climb over the past five years as investors reach indiscriminately for yield, such a break may bode ill for market strenght – some would say ‘complacency’.

Crude Oil Declines after OPEC Meeting

Chart Created by John Kicklighter using Data from Bloomberg

The market implications of this oil change are not isolated to crude charts, nor are they broad fundamental connections. There are plenty of short-term influences to be find in the FX world and likely the capital markets when US liquidity returns for a shortened session tomorrow. Below, the Russian Ruble suffered for the price fall with the currency dropping to a fresh record low against the US Dollar (USDRUB high) on a three-day collapse.

Crude Oil Declines after OPEC Meeting

Chart Created by John Kicklighter usingTrading View on DailyFX.com

From a more liquid and less risky market (Russian authorities have positioned themselves so that they can intervene more effectively recently to ‘punish speculators’ should it be necessary), the Canadian Dollar would also put in for a sizable move. Below USDCAD surged over 100 pips after the news. Many ‘commodity bloc’ currencies showed the same outcome – including Europe’s concentrated producer, Norway.

Crude Oil Declines after OPEC Meeting

Chart Created by John Kicklighter usingTrading View on DailyFX.com

The spark of volatility following this update was certainly dramatic. However, considering the broader trend from crude over the past months and the fundamental imbalances growing behind the supply-and-demand dynamic, expect the energy market to be an important discussion point for the global markets – from Emerging Markets to Developed Markets to energy producers to energy consumers – going forward.

--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

Follow me on twitter at http://www.twitter.com/JohnKicklighter

Sign up for John’s email distribution list, here.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.