Talking Points:
- Crude Oil Technical Strategy: Rebound Off 8-Week Low In Doubt As USD Remains Strong
- OPEC Making Final Push Two-Weeks Before Vienna To Secure Production Cut Deal
- Saudi Energy Minister Warns Trump Not To Block Oil Imports Per FT
After falling almost 20% from mid-October to early-November, Crude Oil has bounced ~7%. Much of the credit on the bounce has come from a Bloomberg report that OPEC will soon begin its final diplomatic push two weeks ahead of the final discussions on an agreement to cut production that was originated in Algiers last month.
Interested In a Quick Guide about OPEC, Click Here
The rise in the DXY post-election has presented a specific headwind for Crude Oil. However, the correlation has broken down significantly as volatility has increased through November. However, it stands to reason that further USD strength would continue to put downside pressure on the price of Crude Oil as we saw in H2 2014 when Crude began its descent from $112/bbl as the USD started its initial meteoric rise after a similar stalling pattern from 2012 through H1 2014.
On Tuesday, the Financial Times reported that Saudi energy minister Al-Falih had a message for President-Elect Trump that the U.S., “benefits more than anybody else from global free trade,” and that, “energy is the lifeblood of the global economy.” We’re still in the pre-inauguration period for President-elect Trump, but many will look new information about Trump’s intended Trade deals as well as informal talks being held in Doha on November 17-18 to see if Monday-Tuesday’s rally will follow through.
As expected, Options volatility is heavily weighted to cover the front-month that covers the outcome of the Vienna meeting on November 28. The aggressive push higher on the front-month contract (CLZ6) should give caution to bears. However, a failure to secure a worthy cut of production from OPEC and participating non-OPEC members could cause a sharp move lower toward a target we’ve been watching on the charts.
D1Crude Oil Price Chart: USOIL Continues To Pressure The Trendline / 200-DMA
Chart Created by Tyler Yell, CMT Courtesy of TradingView
The Trendline drawn off the first higher low in early April should continue to be watched as an indicator for the path of least resistance in Oil. Given the near-20% drop from the $51.94/bbl high and the sharp post-election pull-back, it’s hard to get excited about Crude’s prospects despite this week’s rally.
We continue to get measures of aggressive supply coming onto the market with a stronger-DXY. Should the price hold below short-term resistance at $45.90 (post-Election high), and eventually work back below the 200-DMA ($43.95/bbl.) then we’ll keep the focus on a move toward $40/bbl. or lower.
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Beyond the post-election high, a further move higher should watch t5he 61.8% retracement of the October-early November range at $48.19. A break above there alongside DXY weakness would help put confidence in the Bull’s view. You’ll notice on the chart above that the top of the Andrew’s Pitchfork that is downward sloping also rests between the zones of resistance we’ve been watching. A break above there should be seen as a less probable scenario, but an OPEC deal and a DXY pull-back may do the trick.
Given the similarities to H2 2014, we would encourage readers to keep an eye on an impulsive decline, which would continue to validate the possible double-top at ~$51/bbl that would target the following downside levels: $35.96, $31.70, and $26.99. Such a move would be painful but should be seen as possible if OPEC talks fail, DXY continues to strengthen, and supply continues to build.
Key Levels Over the Next 48-hrs of Trading as of Tuesday, November 15, 2016
T.Y.
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