Crude Oil eyes Doha meeting on April 17th

Apr 14, 4:22 am
Crude Oil

Oil rallies ahead of the weekend OPEC/non-OPEC meeting in Doha to agree on the oil production freeze

Summary:

  • Oil’s strong rally clearly shows the Doha talks being priced in, with expectations that the deal will come through, increasing the downside risks
  • OPEC/non-OPEC members still don’t see eye to eye on freezing production levels with both Saudi Arabia and Russia pumping oil at record levels
  • Scope that backdoor negotiations could see some consensus being reached
  • Analysts mixed on Crude’s outlook with Goldman Sachs and the likes maintaining a bullish bias while some high profile traders say Oil has not yet bottomed near $26
  • Rating agency Fitch cut Saudi Arabia’s sovereign credit rating to AA- and follows SP’s downgrade in February while Moody’s has the kingdom on their downgrade watch list as they expect Saudi deficit to rise 14.80% of its GDP in 2016 on lower oil prices

Looking at Crude Oil’s rally this past week and the various news headlines on oil, it is quite likely that Crude Oil prices are heading into the unknown especially over a weekend with the markets are closed. For the moment, Doha talks remain the underlining force in Oil prices with market expectations inclined to see the deal coming through while ignoring negative comments such as reports that Iran would be opting to send a representative rather than the Oil & Energy Minister. Earlier this week, Russia announced that it would keep Oil production in 2017 at the current levels while Saudi upped its ante and said that Oil production would be frozen at February levels. Rumours were also rife with some expecting the deal to come through with or without Iran’s participation.

On a week to date basis, Oil prices gained 4.20% with Crude Oil futures settling yesterday at $41.55 a barrel. Yesterday, the weekly crude oil inventory report saw a surprise increase with commercial crude stockpiles rising 6.63 million barrels for the period ending April 8th. This follows the 4.937 million barrels drawdown seen in the previous week.

Traders Caution: Due to the fact that the talks take place on a weekend, based on the outcome of the week, Crude Oil prices could turn volatile with the risk of leaving a price gap. Traders are warned to apply caution heading into this week especially if you have open positions in Crude Oil.

Crude Oil Technical Outlook

The weekly chart in Crude oil shows prices in the second week of gains erasing the dip from the previous two weeks. Strong resistance at $44.5 – $44.0 is noted, and only a convincing close above this resistance will confirm further upside in prices. So far, the hidden bearish divergence remains intact, and a failure to close higher could signal strong downside risks. Initial support comes at $38.25 followed by $32.7.

Crude Oil Weekly Chart (Continuous Contract)
Crude Oil Weekly Chart (Continuous Contract)

The daily chart shows a doji close yesterday near the 200 day EMA, marking the second test to this region. A bearish close today below $41.24 could signal further downside if oil also closes below the short-term support at $40.50. This could open up for a further decline in the $38.25 region of support. With the median line failure on the daily chart, we can anticipate prices to move towards the lower median line at or near the above two mentioned support levels.

Crude Oil (Continuous Contract) – Daily Chart, doji reversal
Crude Oil (Continuous Contract) – Daily Chart, doji reversal

On the 60 minute chart, having broken the rising trend line, any pullbacks could be limited to the $41.50 level. The downside bias will be invalidated if prices shift higher to close above $42.20. Support at 40.50 – 40.40 will likely offer the first level of support followed by 38.25 – 38.10 and eventually 36.8 – 36.6

Crude Oil (CL_6K, May Contract) – H1 Chart, trend line broken
Crude Oil (CL_6K, May Contract) – H1 Chart, trend line broken
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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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