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Oil Outlook: Bearish Momentum Abates Amid Failure to Test August-Low

Oil Outlook: Bearish Momentum Abates Amid Failure to Test August-Low

David Song,
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Oil Talking Points

Crude slips to a fresh monthly-low ($65.37) even as Nigeria Petroleum Minister Emmanuel Ibe Kachikwu argues $70/bbl is a ‘comfort level’ for the Organization of the Petroleum Exporting Countries (OPEC), but a series of failed attempts to test the August-low ($64.45) may generate a near-term rebound as the bearish momentum starts to abate.

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Oil Outlook: Bearish Momentum Abates Amid Failure to Test August-Low

Image of daily change for oil prices

Mixed comments from OPEC and its allies appear to be taming the recent weakness in oil as the fresh rhetoric conflicts with the pledged to pursue a ‘produce as much you can mode,’ but the weakening outlook for global growth may keep crude prices under pressure as the latest Monthly Oil Market Report (MOMR) projects less consumption in 2019.

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It seems as though the latest move by OPEC and its allies is in response to the slowdown in emerging market economies along with the ongoing shift in U.S. trade policy, and updates from the Department of Energy (DoE) may also reflect narrowing demand as oil as inventories are expected to increase another 3106K in the week ending October 26. In turn, producers may actively seek to balance the energy market especially as the U.S. sanctions on Iran go into effect in November, and the recent surge in volatility appears to be spurring a change in market behavior as retail interest sits near extremes.

Image of IG client sentiment for crude oil

The IG Client Sentiment Report shows 76.0% of traders are still net-long crude, with the ratio of traders long to short at 3.17 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 11.0% lower since then. The number of traders net-long is 7.0% lower than yesterday and 4.5% lower from last week, while the number of traders net-short is 7.4% lower than yesterday and 13.4% lower from last week.

The sharp accumulation in net-long interest provides a contrarian view to crowd sentiment as traders attempt to fade the weakness in oil, with crude prices at risk for further losses as it threatens the upward trend from earlier this year. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Oil Daily Chart

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  • Crude remain vulnerable as it struggles to get back above the 200-Day SMA ($67.50), with a break/close below the $64.80 (100% expansion) to $65.30 (61.8% retracement) hurdle raising the risk for a move back towards the June-low ($63.62) as it initiates a fresh series of lower highs & lows.
  • Next region of interest comes in around $62.10 (78.6% retracement) to $62.80 (38.2% retracement), but the bearish momentum appears to be abating as the Relative Strength Index (RSI) breaks the bearish formation from earlier this month after failing to push into oversold territory.
  • In turn, lack of momentum to test the August-low ($64.45) may generate a near-term rebound, with a move back above the $67.00 (50% expansion) to $67.50 (50% retracement) region opening up the $69.10 (61.8% expansion) to $69.70 (38.2% retracement) area.

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

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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