Oil Reverses
Another week draws to a close and its been a much quieter week for traders, a glimpse of the duller summer sessions to come perhaps. However, despite the lack of any explosive moves, there have still been some key developments and plenty of trading opportunities. For some, these opportunities have been capitalised on, for some, these opportunities were missed altogether. Talking with traders this week it seems the main trade capturing people’s attention is the more than 6% drop in crude oil. Let’s take a look at what happened and why this was a great trade. As always, if you caught the move, well done! And if not? There’s always next week.
What Caused the Move?
The main catalyst behind the decline was news that the OPEC+ meeting, extended from last week, had finally produced a compromise. OPEC and a group of non-OPEC allied nations led by Russia were meeting to agree up on the next wave of production increases. Following the record-setting 10million barrel per day reduction in oil supply agreed over the height of the pandemic, OPEC has been steadily increasing oil supplies this year in a bid to balance the market as prices rise.
However, the meeting ran into difficulties with UAE producers looking for production to be stepped up at a quicker pace to satisfy the increase in their production capabilities established over the pandemic. With Saudi Arabia pushing for slow and steady increases, in a bid to avoid dampening prices gains, the two sides hit an impasse last week, with talks left running into this week.
After a full week of negotiating, however, the two sides struck a deal this week with the production baseline in the UAE to be stepped up to 3.65 million bpd from the current 3.168 million bpd.
News of the increased supply has hit oil markets, stoking fears that production will continue to increase at a quicker pace than earlier projected, as well as suggesting the potential for further rifts between Saudi Arabia and the UAE to result in the UAE breaking away and flooding the market with supply.
So, that’s the fundamental backdrop to the trade, let’s now take a look at the technical picture.
Technical Views
Crude Oil
The second failure at the 74.46 level raises the risk of a deeper reversal, with MACD and RSI both turning bearish here. The key level to watch is the 69.53 with the rising channel low coming in just beneath. A break lower here would be a significant bearish development.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.