Commodities | Dec 03 2015
By Tyler Yell, CMT, forex trading instructor, FXCM
- Crude Oil Technical Strategy: Oil Prints Lowest Price Since August 26th, Further Downside Favored
- Mid-November Low Breaks As US Dollar Strength Turns Focus on August 24th Low
- Resistance Remains at Weekly R1 Pivot and Late-November High of $43.43
It’s that time of year again. A showdown is likely to take place in terms of who in OPEC is willing to cut production, and who is unwilling to lose market share should the [WTI] Oil Price recover. A year ago, OPEC opted not to cut production, which sent price plunging below [USD] $70 per barrel. The question many are now asking is whether or not OPEC will cut production $30 below the level we were at a year ago. It’s worth noting that many OPEC countries need Oil at certain levels in order to meet fiscal policy budgets. However, it appears there is no consensus ahead of Friday’s meeting as we first got word from Iran that there was broad willingness to cut production, which sent Oil higher only to be followed by the headline, ‘SAUDI ARABIA, GULF ARAB COUNTRIES DON'T SUPPORT CUT.’ Without consensus, production will continue running high that could keep pressure on Oil. Ten minutes after the announcement of disagreements this morning, we received the inventory data from the Department of Energy that showed a much larger build than expected, of actual 1177k vs. exp. -679k. The above events combined with a strong US dollar that is inversely correlated to the WTI Crude Oil caused Oil to see sub-$40 oil today and the volatility isn’t expected to slow down.
The prior support focus of $39.89 broke today, and we’re looking at a close below another significant level of $40.48. $40.48 comprises of the 78.6% Fibonacci level of the August October range, the high price of the 2015 extreme day on August 24th, and the closing price of November 19th where price hit a previous multi-month low. Looking to technical indicators, the 21-DMA at $42.41 and Weekly Pivot at $41.91 will continue to act as near-term support followed by the prior key resistance of the weekly R1 and late November price high of $43.43.
Given that an OPEC cut is unlikely at Friday’s meeting without Saudi support and US Dollar strength, we’ll continue to favor downside. FX Traders could look to confirmation via the inversely correlated USDCAD could make a push to new highs. Strong trends are your friends for many reasons in trading, and one reason is that their slow to leave you. This trend lower in US Oil will remain with price staying below resistance at $41.91/$43.43bbl zone and opportunities to sell on strength appears the favorable approach until the larger environment changes.
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