Crude oil drops as OPEC decides against cutting production quota

So, as we had expected (see yesterday’s email below) the OPEC decided against trimming it is production quota of 30 million barrels of oil per day and prices have unsurprisingly extended their falls as a result. The Brent contract has so far fallen to a low of $74.35, thereby taking out the key psychological $75.00 level. WTI slipped below the $71.00 handle immediately after the news was announced. Given that much of the news was already priced in, I wouldn’t be surprised to see oil prices stage a short covering rally now, especially as most US investors are on holiday. That said, the potential gains would be limited as the news means the oil market will remain amply supplied for the foreseeable future. Therefore, all else remaining equal, crude prices should be pushed further lower in the weeks and months ahead.

If Brent closes the day below the $75 handle then it would be reasonable to expect further follow-through in selling on Friday. As things stand, the next support seems to be around $73.50, which corresponds with the lower support trend of the bearish channel. Beyond that, the sellers could target the next psychological level of $70 a barrel. But that’s not to say prices will necessarily bottom there. For all I know, Brent could drop to even $50, before staging a significant recovery. It is important to note that what has happened is that there has been a shift in paradigm. So the trend can remain lower longer than most people expect it to. WTI meanwhile could fall its own psychological handle of $70 a barrel over the coming days. Standing on the way to tat target is a 161.8% Fibonacci extension level at just below $70.50. The previous support levels could now turn into resistance. For Brent, that level was $77.60 while for WTI it is $73.30.