Crude oil steadies as OPEC meeting nears

With just a week to go until the next OPEC meeting, crude oil prices are showing signs of steadiness. The market is seemingly throwing the ball in the cartel’s court and is demanding the production quota to be trimmed meaningfully. This implies that in the event the OPEC fails to agree on cutting its output, prices are likely to extend their falls. For now though, oil traders appear to be happy with the extent of the recent drop – for if they weren’t, prices should have fallen more today on the back of those disappointing manufacturing PMI readings from China, Japan and the Eurozone. Granted, the US Philly Fed survey might have had its second best reading since records began, but this is unlikely to have negated the impact of the PMI falls in the aforementioned global regions which account for the vast majority of global oil consumption. It is also worth pointing out that WTI prices failed to move lower on the back of yesterday’s official US oil report, which showed a surprise increase in crude stocks; this could also be interpreted as a bullish sign. That said, crude imports were at least partially responsible for the build, for they were up a good 761 thousand barrels per day more compared with the previous week. In other words, it wasn’t just the excessive production in the US that contributed to the latest inventories build. What’s more, distillate stocks actually decreased sharper than expected, suggesting demand for heating is coming back due to the colder weather. Indeed, natural gas prices today hit their highest levels since June, supported by a sharp reduction in gas storage: according to the Energy Information Administration, they fell by a good 17 billion cubic feet in the week to Friday 14 November. Expectations were for a 12 Bcf reduction.

From a technical point of view, the selling momentum behind WTI appears to be fading around the psychological $75 mark. This is highlighted by the RSI forming a positive divergence recently (it has made a higher low even as WTI formed a lower low), which in itself is a potentially bullish development. From a price action point of view, WTI formed a doji candle on the daily chart yesterday which pointed to indecision. This incisiveness has discouraged the bears to establish fresh bold positions today, which is probably why prices didn’t extend their falls despite the weaker PMI numbers. But all in all, it is too early to say whether prices have found a bottom yet. The key resistance levels remain intact and while that is the case, the bulls should proceed with extra caution. The next resistances are around $76.40 and $79.80 – levels that were formerly support and have turned into resistance. Once one or two of such levels break, we could see some sellers rush for the exits and that could provide some support for prices. Having said all that, the vast majority of the market is still bearish on oil prices for good fundamental reasons (i.e. excessive supply and weaker demand growth) and so further losses should not come as surprise to anyone.

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Source: FOREX.com. Please note this product is not available to US clients.

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Source: FOREX.com. Please note this product is not available to US clients.