FIS: Crude Oil Market Overview: Oil slumps despite OPEC cut pledge
The markets seem to be balancing the OPEC+ oil production cut as we saw multiple headlines screaming, “$100 oil is coming!”
This could be an overall neutral sentiment despite prices falling. OPEC+’s decision would most certainly influence prices to go up. However, several factors still support the fall of prices. A potential global economic recession, the U.S. counteracting by increasing their production, Russian supply, and Chinese demand.
Starting with the second-largest economy, China. It delayed its anticipated third-quarter critical economic data and gross domestic product growth rate. This was due to be announced at the 20th Chinese Communist Party conference. It is unclear what the reason for the delay is, and the National Bureau of Statistics did not respond to comment, Financial Times reported. The data is supposed to show a continued economic weakness due to the property crisis and covid lockdowns. We expect to see President Xi Jinping land a third term in office, which will mean more of the same approach we have seen over the last few years: zero covid policy and long-term economic growth.
OPEC+ member states had to endorse the cut after the US accused them of supporting Russian foreign earnings and doing it for political reasons. Saudi King Salman bin Abdulaziz said it supported the decision based on supporting stability and balance in oil markets. The Saudi defence minister, King Salman's son Prince Khalid bin Salman also said all OPEC+ member states agreed based on economic factors. “Purely Technical,” some said. As member states backed these statements, the USA claimed Saudi Arabia had pushed other member states to oil cut. This war of words adds to the deteriorating U.S.-Saudi relations since Biden took office.
The U.S. is expected to counter by raising its supply. Whether this was the plan before the cuts is another story. The biggest U.S. shale oil basin is forecast to rise by 50,000 barrels per day (bpd) to 5.5 million bpd in November, the U.S. Energy Information Administration (EIA) said in its productivity report on Monday. Reuters reported that U.S. crude oil output is expected to rise in major U.S. shale basins by about 104,000 bpd to 9.1 million bpd in November. This will be the highest since the pandemic started. We should expect more activity from the U.S. as the mid-term elections approach. This may also explain the increase in activity and words from the largest oil producer. Some sources have claimed that the Biden administration will release oil from Strategic Petroleum Reserve to dampen fuel prices before the congressional elections. Leadership positions are more volatile than the steadier oil market this week.
Technical view of the Crude Oil Market:
December Futures – Bullish but with a neutral bias yesterday, momentum continued to warn that support levels were vulnerable.
The confirmation that the U.S will be releasing more strategic oil reserves resulted in the futures trading below the USD 90.57 support. The daily technical now has a neutral bias. The price is below the 8-21 period EMA’s with the RSI still below 50.
Technically bearish on the intraday, upside moves that fail at or below USD 92.95 will leave the futures vulnerable to further tests to the downside. Above this level the technical will have a neutral bias.
Likewise, downside moves below USD 88.77 will warn that the USD 88.34 and USD 87.24 support levels are vulnerable.
The future is technically bearish and rolling over to the downside, which suggests support levels could be tested in the near term. Below USD 88.77 we have the potential to create a positive divergence with the RSI (although this could be marginal), and this needs to be monitored.
Not a buy signal, it is a warning that we have the potential to see a momentum slowdown on a new low.
Written by Mopani Mkandawire and Edward Hutton, Edited by Chris Hudson (https://freightinvestorservices.com/fis-live/).
