Oil Prices Face Renewed Risk of Bear Market as OPEC Sees Waning Demand

Oil Price Talking Points

The price of oil extends the decline from the September-high ($63.38) as crude production in Saudi Arabia gets restored, with energy price facing a renewed risk of a bear market amid the weakening outlook for consumption.

Oil Prices Face Renewed Risk of Bear Market as OPEC Sees Waning Demand

Oil gives back the advance following the supply-side shock as Aramco Trading CEO Ibrahim Al-Buainain states the region reached its “target of production” on September 25, but the Organization of the Petroleum Exporting Countries (OPEC) may continue to regulate the energy market as the group cuts its demand forecast for 2019.

OPEC’s Monthly Oil Market Report (MOMR) continues to warn of lower consumption, with the most recent report highlighting that “world oil demand in 2019 is expected to grow by 1.02 mb/d, which is 0.08 mb/d lower than last month’s projection.”

The weakening outlook for global growth may push OPEC and its allies to cap production beyond 2019 as Secretary General Mohammad Sanusi Barkindo pledges to “further build on this cooperation through the ‘Charter of Cooperation,’ and the group may take additional steps to keep oil prices afloat as Mr. Barkindo insist that “further and more intensified cooperation is the best prescription to treat volatility.”

OPEC and its allies may continue to respond the rise in US output as weekly field production climbs back to the record-high print of 12,500K in the week ending September 20, and it remains to be seen if the group will make a major announcement at the next meeting between December 5-6 amid the weakening outlook for consumption.

With that said, oil prices face a renewed risk of a bear market, with recent developments in the Relative Strength Index (RSI) bringing the downside targets on the radar as the oscillator snaps the bullish formation from earlier this year.

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Crude Oil Daily Chart

Source: Trading View

• The broader outlook for crude oil remains tilted to the downside as a ‘death-cross’ formation took shape in July, with recent developments in the Relative Strength Index (RSI) offering a bearish signal as the oscillator snaps the upward trend from June.
• However, the flattening slopes in the 50-Day ($55.96) and 200-Day SMA ($56.53) warn of range-bound conditions as the moving averages converge with one another.
• Keep in mind, the advance following the supply-side shock has failed to spur a test of the May-high ($63.96), with the break/close below the $54.90 (61.8% expansion) to $55.60 (61.8% retracement) area raising the risk for a move back towards the $51.40 (50% retracement) to $51.80 (50% expansion) region.
• The 2019-low ($50.52) comes up next followed by the Fibonacci overlap around $48.80 (38.2% expansion) to $49.80 (78.6% retracement).

For more in-depth analysis, check out the 4Q 2019 Forecast for Oil

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.