Crude Oil Price Forecast: Oil Drops on Signs of Failed Accord
Welcome to my products:
- Crude Oil Technical Strategy: Short bias remains as falling resistance favors move to $43/bbl
- Supply glut may get worse as IEA favors imbalance through late 2014
- US Dollar continues sideways, which takes out a component of downward price pressure
The last week of Q3 has all focus on the OPEC and Russia meeting in Algiers. The Federal Reserve announcement did little for the US Dollar as many now see even the likelihood of one rate hike as a fading possibility. Now, Algiers may be a disappointment for Oil Bulls as the FOMC meeting on September 21 were to US Dollar Bulls as Iran has said they are not going to freeze output at the current level, and Saudi is not interested in freezing production alone.
While much focus is now on the outcome of the OPEC meeting in Algiers, and the following meeting in November where rumors will likely run rampant once again. However, on Tuesday, IEA came out with a warning that oversupply will exceed demand until late 2017. Traders will likely keep this warning in their back pocket and look for a possible failed-OPEC accord alongside DOE data on Wednesday to show a further build to increase further bearish bets on Oil.
Another development in institutional positioning has the aggressive bearish sentiment that has not been seen since September 2015. The bearish sentiment comes in the forms of Bearish Puts, which are purchased when traders want to sell higher than they believe the market will be in a set amount of time. Such bearish exposure could see the market test some key levels on the charts.
The chart above shows competing technical stories. As explained earlier, the fundamental pressure appears to be for a push lower. Only a reversal of main themes such as a weak US Dollar, Oversupply, OPEC failed accord, followed by a price breakout above $50/bbl should turn trader’s attention toward the bullish mindset of Q2. The competition comes in the form of a potential bullish head and shoulders pattern that would activate an upside bias on a daily close above $50/bbl.
Currently, the price of Crude Oil is sitting in the middle of the August price range, which has engulfed September’s price action. Tuesday’s low was the 50% retracement of the range that spans from $49.10/bbl down to $39.22/bbl. The price support in focus now appears to be near the September low of $42.74/bbl, and if the price is unable to hold above that support, we will turn focus toward the daily price range of the August low from $40.84-$39.22/bbl. Such a breakdown would keep us patiently on the bearish side of the Oil market with a keen focus on fundamental stories.
Looking at the chart above, you can also see the 200-DMA also sits very close to the support levels mentioned above. Many eyes are on these levels from an institutional side to see if buyer’s begin to pour into Crude long positions with stops likely at the August low of $39.22/bbl.
Key Levels Over the Next 48-hrs of Trading As of Tuesday, September 27, 2016