Oil prices dropped to 5 weeks low last week – the largest weekly surge on record, following U.S. data revealed that crude stockpiles increased by more than 14.4 million barrels.
The weekly surge in crude inventories is the direct cause of (Organization of Petroleum Exporting Countries – OPEC’s) failure to reach an agreement on output quotas at the last meeting. In September, OPEC reached a preliminary agreement to cut production, possibly by 200,000 – 700,000 barrels per day. The goal was to pump up prices by removing some unwanted barrels from the market, but OPEC said it wouldn’t have complete details of the plan until the next scheduled meeting at the end of this month (Nov 30th).
In wake of all this, all signs are pointing towards an increase in OPEC production heading into that meeting. That’s because more OPEC producers are lobbying to be exempt from the deal and market sentiments are mostly geared towards a “no-deal” outcome from that meeting. It’s largely because of countries like Nigeria and Libya that refuses to oblige into form of freeze production agreement, which makes production quotas that would meet the market equilibrium all the more difficult. Adding to the concern is lack of clear commitment from Russia, which has been producing crude oil at a record breaking pace.
Going forward, crude oil price could further decline and $40 would be justified by supply demand factors, if OPEC doesn’t deliver a production floor at the end of the month.
Technical Analysis forecast
That being said, the price opens up @ WM2 on both Brent and WTi this Monday morning (07th Nov 2016). For the bulls in the market, the immediate target would be WM4. In the meantime, the bears would be targeting to drive the price down from WM3 to WM1. US election is another high-risk event to be factor into this trading week, so trade wisely…