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Crude oil soared more than 5% overnight following news that the Organization of the Petroleum Exporting Countries had reached a preliminary accord to reduce production. However, oil prices fell on Thursday as scepticism over the effectiveness of the deal led to profit taking.
Oil jumped to a three-week high after OPEC members surprisingly agreed to curb output by between 200,000 – 700,000 barrels a day. Given the current output at around 33.24 million bpd, the new production celling would be within the range of 32.5-33.0 million bpd. This was the first time since 2008 that the cartel reached an output freeze agreement and could re-establish an output ceiling mechanism abandoned a year ago.
This time, OPEC has chosen to defend market prices instead of market share as the 14-member bloc has done in the last two years, which reflects serious consequences that low crude prices have caused to heavily oil-dependent economies.
However, details of the deal, including the specific quota for each member, cannot be finalized until the formal meeting of OPEC members on November 30th, when OPEC also tends to invite non-OPEC oil producers such as Russia to join discussions over production and supply matters.
Investors are questioning if this agreement could arrest the glut in the already over-supplied market, considering the fact that higher prices will attract U.S shale oil producers to come back into the market.
The U.S. Energy Information Administration has reported unexpected supply declines for four weeks in a row. Official data on Wednesday reported that U.S. crude stocks declined by 1.9 million barrels to 502.7 million barrels in the week to Sept. 23. This comes against expectations that inventories would rebound in the current week, after big drops in previous weeks.
Fig: WTI H4 Technical Chart
WTI once again had to give up its strength at the resistance level of 47.45. In the last month, we have seen the price reverse lower when it has come up against this zone at least 3 times. Looking back at previous cycles, we can see that every pullback from the resistance at 47.45 has resulted in a reversal into a downtrend. However, given current bearish candles with long lower shadows, we can see that buyers are preventing prices from falling deeper. Hence, the slide we are seeing can be considered as a correction and the near-term support could be at 46.50.
Buy Limit at 46.50, Stop loss at 46.00, Take profit at 47.45