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Crude Rebound Stalls as Kuwait Seeks Stable Oil Market

Crude Rebound Stalls as Kuwait Seeks Stable Oil Market

2018-11-27 16:30:00
David Song, Strategist
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Oil Talking Points

Crude struggles to preserve the rebound from earlier this week as Kuwait’s Oil Minister, Bakheet Al-Rashidi, argues that ‘it’s very early to talk about any cuts’ ahead of the Organization of the Petroleum Exporting Countries (OPEC) meeting on December 6, and the current environment is likely to keep oil prices under pressure as the Relative Strength Index (RSI) still sits in oversold territory.

Image of daily change for major financial markets

CrudeRebound Stalls as Kuwait Seeks Stable Oil Market

Image of daily change for crude oil prices

It remains to be seen if OPEC will continue to actively respond to falling oil prices as Saudi Arabia considers a more clandestine approach in balancing the energy market, but there appears to be growing speculation for a major announcement next month as the group sees slowing demand in 2019.

Image of EIA US weekly field production of crude oil

Keep in mind, the outlook for non-OPEC production remains mixed as updates from the U.S. Energy Information Administration (EIA) show field production holding steady at 11,700K b/d in the week ending November 16, and OPEC and its allies may try to avoid overemphasizing the recent volatility in oil prices as the group pledges to ‘read the market to see market stability.’ With that said, oil remains vulnerable ahead of the OPEC meeting as the group struggles to meet on common ground, and a further decline in crude prices may fuel a broader change in market behavior and the ongoing skew in retail interest.

Image of IG client sentiment for crude oil

The IG Client Sentiment Report shows 83.5% of traders are still net-long crude compared to 83.7% last week, with the ratio of traders long to short at 5.07 to 1. In fact, traders have been net-long since October 11 when oil traded near the $71.00 mark even though price has moved31.2% lower since then. The number of traders net-long is 8.3% lower than yesterday and 22.2% higher from last week, while the number of traders net-short is 32.9% higher than yesterday and 15.5% higher from last week.

Despite the uptick in net-short position, the ongoing tilt in retail position provides a contrarian view to crowd sentiment as traders continue to bet on a near-term recovery. In turn, crude stands at risk of facing a more bearish fate ahead of 2019 as it snaps the upward trend from earlier this year, with the Relative Strength Index (RSI) highlighting a similar dynamic as the oscillator struggles to bounce back from oversold territory and stubbornly holds below 30. 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
  • Broader outlook for crude remains bearish, with oil at risk of extending the decline from earlier this month as long as the Relative Strength Index (RSI) sits in oversold territory.
  • The Fibonacci overlap around $49.00 (38.2% expansion) to $49.50 (78.6% retracement) continues to sit on the radar, with the next area of interest coming in around $44.50 (78.6% retracement) to $45.30 (23.6% expansion).
  • Need to see the RSI climb out of oversold territory and cross back above 30 to look for a near-term rebound in oil prices, with a break/close back above the $52.00 (50% expansion) handle raising the risk for a move back towards $55.00 (61.8% expansion) to $55.40 (61.8% retracement).

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.

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