Crude Oil Price Forecast: Post-2016 High Pullback Not Worrisome Yet

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Talking Points:

• Crude Oil Technical Strategy: Following Move Higher With Support At Prior Triangle ($51-$49/bbl)
• Supply Worries Develop on Russian Comments & Nigerian Price Cuts
• Gold Price Falls from Two-Week High, Oil into ST Price Support

Crude Oil prices fell back toward $50/bbl and fell from 15-months highs on a stronger US Dollar and developments abroad that have traders worried about the surety of an OPEC accord. On Thursday, Igor Sechin, CEO of Russia’s Largest Oil Company, Rosneft said that Russia has the capacity to add as much as ~4 million barrels a day to current production or ~12% of current OPEC production. Such an announcement might be more of a pre-negotiation statement ahead the informal meeting.

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In addition to Russia’s comments about their capacity to raise production, Nigeria cut prices on all grades of their Crude on Thursday to gain market share. While the Nigerian price cuts could be anecdotal, it highlights the fear many members will have about reducing production of a commodity. When crude is crude regardless of where it is extracted (that is the definition of a commodity), an agreement to cut production to support price by one producer can easily be nullified by new production or a price cut by another producer. Either way, it would be safe to continue to expect to see jawboning ahead of the Vienna meeting on November 30.

Given the anticipation of demand picking up per IEA forecasts and sixth weekly draws in seven weeks of U.S. inventories, it does seem like an appropriate environment for aggressive producers to capture market share.

H4 Crude Oil Price Chart: Watching Triangle Support On Price Pullback @ $49.70/19 per bbl

We have long been a proponent of a Bullish or Reverse head and shoulder pattern in Crude Oil that we discussed in our Q4 Oil Forecast. Wednesday’s price action brought us closer to that outcome, but we’re yet to see a close above $52/bbl.

The chart above shows the triangle breakout through price resistance (upper white line) and above the June 9 high of $51.64/bbl. The Ichimoku Cloud on a 4-Hour chart can continue to act as a support in the move higher as can the zone of triangle support from $49.70 down to $49.19/bbl.

A close examination will show you that the cloud is turning bullish once again whereas the mid-point is of the 9 & 26 trading-periods extended out 26-periods is moving above the 52-period mid-point. While Ichimoku has many components, the cloud turning bullish after trailing sideways is one of the leading indicators that the path of least resistance is now higher.

The Dollar strength on Thursday and stories of increased production / lower prices fit with the pullback from 15-month highs. Despite the pullback, we’ll continue to favor a bullish continuation unless we get a break below the October 10th low ($49.12/bbl), which would turn us short-term neutral with the probability favoring a larger breakdown toward the 50-DMA near $46.50 before aligning with the longer-term bullish bias. Lastly, the move of the 50-DMA > 100-DMA continues to support upside, even if it is a choppy ascent.

Key Levels Over the Next 48-hrs of Trading As of Thursday, October 20, 2016

T.Y.

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