Crude oil on shaky ground as OPEC-led deal remains at risk
James Chen, CMT March 27, 2017 1:10 PM
US crude oil, as represented by the West Texas Intermediate benchmark, fell on Monday to retest the key $47-area support level. This major technical support marks the year-to-date lows, which have already been tested twice within the past two weeks.
- US crude oil, as represented by the West Texas Intermediate benchmark, fell on Monday to retest the key $47-area support level. This major technical support marks the year-to-date lows, which have already been tested twice within the past two weeks.
- Pressure on oil prices during the month of March has been exacerbated primarily by two key factors – 1) concerns that US production is quickly expanding and 2) questions as to whether the current OPEC-led deal to cut production will be extended beyond its current end date in June.
- Over the weekend, oil ministers from OPEC and non-OPEC nations that have participated in the deal agreed to consider an extension. However, the committee of oil ministers did not actually recommend an extension as they had previously.
- While it should be likely that the OPEC-led deal will ultimately be extended, perhaps a more pressing question is how well deal participants will continue to comply with the agreement, particularly non-OPEC countries like Russia.
- Adding onto crude oil supply concerns amid increasing US production and the questionable future of the output deal, the International Energy Agency recently asserted that oil demand is expected to drop from 1.6M barrels a day last year to 1.4M in 2017.
- Overall, current fundamental conditions continue to place pressure on crude oil prices, as few catalysts presently exist to cause any appreciable recovery.
- From a technical perspective, US crude oil has been in a pressured consolidation for the past two weeks after having plunged from the $50’s earlier in the month. As noted, Monday saw an early drop to retest the $47-area support lows, forming what now appears as a tentative triple bottom pattern. Although such patterns sometimes point to a price-bottoming, current fundamental pressures continue to weigh on crude oil prices. With any continued pressure, a breakdown below $47 support could target the next major downside objective at the key $45 support level.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.