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Oil Talking Points

Crude tumbles to fresh monthly lows as Saudi Arabia Energy Minister Khalid Al-Falih announces that the Organization of the Petroleum Exporting Countries (OPEC) and its allies are in a ‘produce as much you can mode,’ and oil prices may continue to pare the advance from earlier this year as the bearish momentum appears to be gathering pace.

Image of daily change for financial markets

Oil Price Forecast: Bearish Momentum Gathers Pace as OPEC Changes Gears

Image of daily change for crude oil pricesImage of DailyFX economic calendar

With OPEC and its allies now pledging to ‘meet any demand that materializes,’ the current environment may continue to drag on energy prices as the group cuts its world oil demand growth forecast for 2019, with fresh updates from the U.S. Department of Energy (DoE) anticipated to show crude inventories increasing another 3000K in the week ending October 19.

In turn, OPEC may continue to shift gears ahead of the next meeting on December 6 especially as the U.S. sanctions on Iran go into effect in November, and the recent surge in market volatility continues to fuel a shift in retail sentiment, with the development warning of a larger decline in energy prices.

Image of IG client sentiment for crude oil

The IG Client Sentiment Report shows an ongoing change in retail interest as 74.3% of traders are net-long crude, with the ratio of traders long to short at 2.9 to 1. In fact, traders have been net-long since October 11 when oil traded near the $71.00 mark even though price has moved 8.0% lower since then. The number of traders net-long is 3.7% lower than yesterday and 16.6% higher from last week, while the number of traders net-short is 1.7% higher than yesterday and 15.8% lower from last week.

The persist buildup in net-long interest suggests traders are still attempting to fade the weakness in oil, while the net-short community takes profit, and a further shift in crowd sentiment may continue to provide a contrarian view especially as oil threaten the upward trend from earlier this year. At the same time, the Relative Strength Index (RSI) may offer a key development as the oscillator continues to track the downward trend from earlier this month, with a break below 30 raising the risk for a larger decline in crude oil prices as the bearish momentum gathers pace. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Oil Daily Chart

Image of crude oil daily chart
  • The broader outlook for oil may become increasingly bearish for crude as it fails to bounce back from the 200-Day SMA ($67.43) like it did in August.
  • Close below the $67.00 (50% expansion) to $67.50 (50% retracement) region bringing the $64.80 (100% expansion) to $65.30 (61.8% retracement) hurdle on the radar, which largely lines up with the August-low ($64.45).
  • Then comes the June-low ($63.62) followed by the Fibonacci overlap around $62.10 (78.6% retracement) to $62.80 (38.2% retracement).

For more in-depth analysis, check out the Q4 Forecast for Oil

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Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.