CRUDE OIL (LCOc1) ANALYSIS
- Breaking news - lower crude oil prices for Asia.
- Crude demand forecast set to increase.
- Symmetrical triangle remains in focus - key levels being tested.
CRUDE OIL FUNDAMENTAL BACKDROP
The major crude oil export from Saudi Arabia “Arab Light” is in focus today as state owned Saudi Aramco cuts prices for the October shipment to Asia – excluding the U.S. and Europe. The price per barrel or Official Selling Price (OSP) was reduced from $1.70 to $1.30 surprising market expectations which forecasted a much smaller markdown.
Declining Chinese PMI data last week (see calendar below) may have added pressure on the Saudi’s decision after COVID-19 continues to plague economies around the world. This will likely be transitory after which the Chinese market should recover and increase crude oil imports, while the cheaper price should further supplement buyer interest.
Source: DailyFX Economic Calendar
The demand forecast from OPEC’s August monthly oil market report shows an increase in demand for crude oil heading into early 2022 (refer to graphic below). OPEC+ and their decision to increase production monthly falls in line with the above OPEC forecast but challenges are almost certain to crop up along the way.
BALANCE OF SUPPLY AND DEMAND (2021 – 2022):
Source: OPEC
A recovering U.S. dollar helped pull crude prices marginally higher after Non-Farm Payroll (NFP) data last week.
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TECHNICAL ANALYSIS
BRENT CRUDE (LCOc1)DAILY CHART
Chart prepared by Warren Venketas, IG
The daily crude oil chart shows minimal movement today reflecting broader financial markets as the U.S. celebrates labour day. The symmetrical triangle (black) formation tracking back to early July 2021 is still under consideration as price action tests topside resistance. A rejection of this resistance zone may see prices continue within the triangle towards triangle support.
The Relative Strength Index (RSI) persists withing the bullish momentum area (above 50) while the Exponential Moving Averages (EMA) sit below the recent daily candles. A narrowing between the 20 (purple) and 50-day (blue) EMA could result in a bullish crossover which may see crude oil bulls flood the market.
The long extended upper wick on today’s candle shows a refusal by bears to allow trade above the $72.00 per barrel handle. Tomorrows trade may open up more volatility as the U.S. re-enters trade.
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Key resistance levels:
- $73.58
- $72.00
Key support levels:
- $50-day EMA
- $70.00
IG CLIENT SENTIMENT UNCERTAIN
IGCS shows retail traders are marginally net short on Crude Oil, with 55% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, the change in recent shorts and longs result in a mixed signal.
--- Written by Warren Venketas for DailyFX.com
Contact and follow Warren on Twitter: @WVenketas
