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Crude Oil Analysis: Bearish Momentum to Continue Despite Short Term Lift

Crude Oil Analysis: Bearish Momentum to Continue Despite Short Term Lift

2018-11-21 09:00:00
Justin McQueen, Analyst
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Oil Price Analysis and News

  • Oil Plunge to Prompt Russian Involvement in OPEC Curb
  • API Data Breaks Run of Rising Oil Stockpiles
  • Short Term Gain, Long Term Pain

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

Oil Plunge to Prompt Russian Involvement in OPEC Curb

Oil prices continued its descent with WTI and Brent crude losing as much as 6% in yesterday’s session. Consequently, WTI and Brent crude have dropped 30% and 27% respectively from the peak seen on October 3rd. That said, given the drop in oil prices, it would be hard for Russia to not take part in the expected OPEC led oil production cuts at the Bi-Annual OPEC meeting on December 6th, despite stating that they would take a wait-and-see-approach. Since reports circulated that Russia may not take part in the latest round of production cuts, oil prices have dropped around 6%.

As mentioned yesterday, the oil market is not yet convinced by OPEC’s strategy in believing that it will prevent oversupply, despite talk of a potential cut of up to 1.4mbpd. Russian involvement would be needed to increase its influence in stabilizing the oil market and given the sustained drop in prices, it is likely that Russia will participate. Eyes will be on any jawboning to prop up prices ahead of the meeting.

API Data Breaks Run of Rising Oil Stockpiles

A slight reprieve in oil prices this morning with both Brent and WTI clawing back some losses. This has largely stemmed from the surprise drawdown in yesterday’s API inventory report, which showed a 1.5mln barrel drop in stockpiles, against an expected 2.9mln barrel rise. If this is confirmed by the EIA this would end a run of 8 consecutive weekly oil builds and provide a short-term bounce in oil prices. However, this has not changed the overall and sentiment, which will continue to remain weak amid concerns of an oversupplied market in 2019, reflected by both Brent and WTI crude trading in contango. A more notable price recovery would need to the oil forward curve move back into backwardation.

What Traders Need to Know When Trading the Oil Market

Important Difference Between WTI and Brent

OIL PRICE CHART: Daily Time-Frame (Dec 2015-Nov 2018)

Crude Oil Analysis: Bearish Momentum to Continue Despite Short Term Lift

Chart by IG

Brent crude has run into resistance at the 38.2% Fibonacci Retracement level (rise from 2016 low to 2018 high), which keeps the bearish momentum intact. On the downside, crucial support is situated at $61.67, which marks the 2018 lows. A close below sets Brent on course to make a test of the $60/bbl mark. Based on IG client sentiment the outlook for oil prices is mixed.

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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

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