Oil Price Forecast: WTI Remains Vulnerable Below the 100-Day MA

OIL PRICE FORECAST:

• Oil Prices Failed to Hold onto Early Gains as Saudi and Russia Re-Affirm Commitment to Supply Cuts.
• Venezuela Eyeing Deals with Private Companies to Speed Up Production Output.
• IG Client Sentiment Shows Traders are 79% Net-Long on WTI at Present.
• To Learn More About Price Action, Chart Patterns and Moving Averages, Check out the DailyFX Education Section.

Most Read: What is OPEC and What is Their Role in Global Markets?

Oil prices are up around 1.3% at the time of writing as Saudi Arabia and Russia reiterate commitment to supply cuts. The two OPEC members confirmed their commitment to extra voluntary oil supply cuts to the end of 2023.

OIL CUTS EXTENDED TO 2024?

Given the signs of weakness we are starting to see in the US and have already seen in the majority of Europe (recent PMI data) there is a real chance the voluntary cuts may be extended into Q1 of 2024. As OPEC have continually stated their goal is to maintain price stability and balance and thus the cuts may be needed in 2024 If demand and global growth slows.

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VENEZUELA IN DISCUSSION WITH OILFIELD FIRMS TO REVIVE OUTPUT

The recent lifting of sanctions (temporarily) has not had any material impact to markets as intimated by OPEC. The decline in standard and lack of maintenance to infrastructure have left the Venezuelan authorities in a pickle. Based on recent Baker Hughes rig count data, Venezuela only has 1 active drilling rig from 80 that were active in 2014. This was the reason cited by OPEC and discussed in previous Oil article as a stumbling block to rapidly expand production and have a material impact on Oil supply. The initial hope was that an influx of Venezuelan Oil may help lower prices given the shar rise we had over the past month.

Source: Refinitiv, Baker Hughes International Rig Count

According to reports Venezuelan officials have made proposals to small private Oil contractors to operate some PDVSA oilfields in order to improve output. According to sources some companies who have approached the PDVSA to reactivate business ties were referred to Camimpeg which is an oil and mining services firm owned by the Venezuelan military. Prior to the sanctions being eased by the US the PDVSA had apparently planned to recover well and rigs to increase output with local firm Operadora one of the leading firms tapped to rescue damaged and looted equipment. It will be interesting to keep an eye on how this develops over the coming weeks and whether the easing of sanctions is here to stay.

DATA AND RISK AHEAD FOR OIL PRICES

Data is a bit sparse this week, but we do have Chinese import and export data which will be closely monitored to gauge if the economy is moving in the right direction. Exports will be crucial as well and will point to the health of the Global economy as well given the importance of the Chinese export market in terms of Global trade. Last week saw poor factory data from China coupled with the miss by Apple on Chinese sales putting market participants on alert once more.

What is intriguing though is despite the up and down nature of the Chinese economy in 2023, Oil purchases and demand have been through the roof as the Chinese looks to rebuild and replenish their stockpiles. This obviously means that any drop off in demand has not been felt yet but maybe felt once the Chinese are comfortable with their inventory levels. This could see the Oil purchases from China more reflective of the state of the economy and a drop-off in demand could push Oil prices lower.

For all market-moving economic releases and events, see the DailyFX Calendar

TECHNICAL OUTLOOK AND FINAL THOUGHTS

From a technical perspective both, WTI has been trading in a tight range for the last 5 days but remains vulnerable below the 100-day MA. As it stands a break below the $80 a barrel mark will open up a potential test of the 200-day MA at $78.15. This is also the level where we had the beginning of the extended upside rally which reached the $95 a barrel mark and could be a key support level.

Alternatively, a push higher here will face immediate resistance at $82.92before attention turns to the 20-day MA at 84.60 and the psychological $85.00 a barrel mark.

WTI Crude Oil Daily Chart – November 6, 2023

Source: TradingView

Key Levels to Keep an Eye On:

Support levels:

• 80.00
• 78.15
• 76.95

Resistance levels:

• 81.71
• 82.92
• 84.60

IG CLIENT SENTIMENT

IG Client Sentiment data tells us that 79% of Traders are currently holding short positions. Given the Contrarian View to Crowd Sentiment Adopted Here at DailyFX, is this a sign that Oil prices may continue to fall in the days ahead?

For a more in-depth look at WTI/Oil Price sentiment and ways to utilize it, download the free guide below.

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda