Market Analysis

Crude Oil: Drops ahead of the critical OPEC meeting

Some of the optimism surrounding the easing of trade tensions between the US and China seems to be evaporating as Ministers from the Organization of the Petroleum Exporting Countries (OPEC) prepare to meet in Vienna on December 6th and 7th to decide on production policy for the next six months.

Most market analysts expect that major producers, led by Saudi Arabia and Russia, would agree on some form of production cut in an effort to stave off a global glut in supplies and support up prices although there some comments that Russia was not on board with that plan at the moment.

OPEC’s advisory committee suggested decreasing production by about 1.3 million barrels per day (bpd), according to recent reports, while other oil producers also considered reductions in supply heading into next year.

Crude oil has taken a pounding in recent weeks, with prices suffering their worst month for more than 10 years in November, losing more than 20%, as last week increasing inventories depressed sentiment.

American Petroleum Institute (API) reported yesterday its weekly statistical bulletin (WSB), which revealed a rise to 5.360 million in crude oil stocks compared to last week number of 3.453 million barrels. This increase may suggest a cut in demand, which might fuel the oil price to carry on with its downward trend.

In the meantime, markets remain cautious on the US Energy Information Administration (EIA) report on crude inventories due tomorrow, following last week’s number of 3.577 million barrels. Tomorrow, we will have the release of EIA latest survey the report and is expected to show a drop in crude oil stocks with estimates at -2.267 million barrels. If the decline in crude inventories is less than expected, it implies weaker demand and is negative for crude prices.

The API data is often seen as a prelude to the EIA data, as it is released the evening before the EIA report. There is definitely a relationship between the two data sets: 80% of the time the data is directionally aligned.

Meanwhile, according to the last data from energy Services Company Baker Hughes released on November 30th, the average number of US oil-drilling rigs rose to 887 comparing to the 885 released on November 23rd. This rig count is an important business indicator for the oil drilling industry and acts as a leading indicator of demand for oil products.

Since the beginning of 2018 until last Tuesday close, the crude oil remains negative with a loss of more than 12.5% but since the start of December advanced more than 0.3%. Nonetheless, the weekly outlook remains with a minor gain of 0.34% and on the daily basis, the commodity closed deep in the red with almost 1.0% loss. Furthermore, crude oil remains in a bearish phase since late-October.

On yesterday session, crude oil initially rallied with a wide range but found enough resistance near the 2016 high at 54.47 to reverse and trim all of its gains, consequently closed near the low of the day, however, managed to close within Mondays’ range, which suggests being slightly on the bearish side of neutral.

The stochastic is showing a strong bullish momentum although is still below the 50 midline.

The commodity continues under pressure making lower highs and lower lows signs of a well-established bearish trend. Crude oil ended November making a new year-to-date low at 49.40 before bouncing from a daily support and kick-starting an upward correction. Now the commodity hit a brick wall near 2016 high at 54.47 that seems to have stopped the upward correction and it may begin a sideways correction at least until the end of the OPEC meeting on late Friday.

LCrude is a CFD written over Light Crude futures.


LCrude Jan ’19 Daily Candlestick Chart

LCrude Jan ’19 Daily Candlestick Chart


Watch out this Week:

On Thursday begins the OPEC meeting, which is attended by representatives from 13 oil-rich nations. They discuss a range of topics regarding energy markets and agree on how much oil they will produce. OPEC is responsible for nearly 40% of the world’s oil supply.

On Friday at 13:00 GMT (8:00 AM ET) the Baker Hughes will release weekly data on the US oil rig count. An increase in the oil rig count is seen as having a potential negative impact on crude oil price because it is perceived as a likely increase in crude oil inventories if demand does not pick up.

LCrude is a CFD written over Light Crude futures.


Written by Hugo O’Neill, External Analyst


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