Oil Price Talking Points
Oil struggles to retain the advance from earlier this week even though U.S. Crude Inventories unexpectedly climb 3963K in the week ending May 3, and the price of oil stands at risk for a larger pullback as the bullish momentum abates.
Oil Price Forecast: Bullish Momentum Abates Ahead of OPEC Meeting
Crude appears to be stuck in a narrow range as the Organization of the Petroleum Exporting Countries (OPEC) and its allies prepare for the Joint Ministerial Monitory Committee (JMMC) meeting on May 19, and it remains to be seen if the group will continue to regulate the energy market beyond the June deadline amid the weakening outlook for global growth.
The OPEC+ alliance has certainly helped to prop up crude throughout the first-quarter of 2019 as the group scales back on production, and the coordinate effort may get carried into the second-half of the year even though the most recent Monthly Oil Market Report (MOMR) warns of ‘slower-than-expected economic activity compared with the expectations of a month earlier.’
It seems as though the U.S. and China, the two largest consumers of crude, will continue to push for a trade deal as Vice Premier Liu He travels to Washington before the Trump administration boosts tariffs on Chinese goods, and the narrowing threat of a trade war may encourage OPEC and its allies to keep oil prices afloat throughout the remainder of the year.
Until then, recent price action warns of a larger pullback as crude comes up against channel support, and the bullish momentum may continue to abate over the coming days as the Relative Strength Index (RSI) falls back from overbought territory and snaps the upward trend carried over from late-2018.
CL1 Daily Chart
- The advance from the 2018-low ($42.36) may continue to unravel as both price and the RSI threaten the bullish trends from earlier this year, with the lack of momentum to trade back above the $62.70 (61.8% retracement) region raising the risk for range bound prices.
- Keep in mind, a ‘golden cross’ formation appears to have taken shape as the 50-Day SMA ($61.18) crosses above the 200-Day SMA ($60.76), but the different in slope undermines the potential for a bullish signal.
- With that said, the Fibonacci overlap around $59.00 (61.8% retracement) to $59.70 (50% retracement) sits on the radar, with the next downside area of interest coming in around $57.40 (61.8% retracement).
For more in-depth analysis, check out the 2Q 2019 Forecast for Oil
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--- Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong.