Oil Slips Ahead of OPEC+ Meeting
Matt Simpson November 4, 2021 12:47 AM
Oil prices fell to a 4-week low overnight, during their most bearish session in 3-months.
Oil prices fell to a 4-week low overnight as US crude stockpiles rose more than expected. Crude inventories rose by 3.3 million barrels last week, more than the 2.2 million barrels expected, although the rise is partly due to the 200k barrels per day (bpd) increase of overall US crude production which now sit at 11.5 million bpd. Furthermore, gasoline inventories were down 1.5 million barrels last week, taking total to a four-year low of 214.3 million barrels. Demand remains strong despite the higher prices. WTI crude fell -3.6% by the close and is down a further -0.6% at time of writing, whilst brent fell -3.2%.
OPEC+ up next
The main focus for oil traders will clearly be today’s OPEC+ meeting. Despite calls form the US for OPEC nations to increase their output, it has effectively fallen on deaf ears. The US (and rest of the world) are feeling the inflationary forces of higher oil prices, enough so that it is making an impact on monetary policy decisions to the point it is now political.
Citing risks of the coronavirus pandemic and rise in oil inventories, Saudi Arabia’s oil minister has said “we are not yet out of the woods” as the crisis isn’t necessarily over. This means OPEC+ are expected to stick to their plan of increasing production by 0.4 million barrels per day each, despite the surge in energy prices.
To expect any meaningful volatility today we may need to see OPEC increase production at a much faster rate, thus weighing on oil prices which are sitting around $80. But this is an outside chance. If they stick to the plan we could expect oil to recoup some of yesterday’s losses, whilst a surprise cut could spur a rally for oil prices.
Chop until you drop
We had raised concerns that the bullish rally on oil prices were headed for some big resistance levels. Moreover, we expected choppy price action around those highs until it either corrected or had paused for long enough and found a new catalyst to resume its trend.
So far WTI is on track for its second consecutive bearish week unless it close above 83.57 tomorrow. Should it close around current levels then the weekly chart will have a 3-week bearish reversal pattern called the Evening star, painting a bearish bias on that timeframe.
If we switch to the daily chart its bullish trend remains apparent despite its volatility of late. Prices are holding above $80 (although beneath its bullish trendline) so $80 is clearly an important level today. For example, $80 could be used as a springboard to recoup some of yesterday’s losses, if OPEC+ do not deviate far form their plan. Using intraday price action (below), we note that 81.00 – 81.50 and 82.50 make viable targets / resistance zones, with stronger resistance likely residing around $83.0.
However, should OPEC+ surprise markets and notable increase output as the West have repeatedly requested, we would expect WTI to fall below $80 and head back towards the October 2018 high around 76.90. Just take note that there was some strong buying activity around 79.15 at the beginning of October so that may act as an interim support level.
- If prices hold above $80 then near-term bullish target is the 81.00 – 81.50 resistance zone.
- Equally, this zone could tempt bears to load up if OPEC+ increase supply more than expected
- However, a surprise supply cut prompting a more volatile bullish reaction and a break above 81.50 pave the way for a run to 82.50 / 83.00
- Should bears retain control, immediate support resides around 79.15 – 79.40, but we’d want to see a break beneath this zone before expecting any decent bearish follow through
How to trade with FOREX.com
Follow these easy steps to start trading with FOREX.com today:
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.