Oil prices edged higher earlier this week after reports showed on Monday that the Organization of the Petroleum Exporting Countries (OPEC) was planning an informal meeting in September this year, on the sidelines of the 15th IEA forum in Algeria. The reports sent oil prices higher on Monday, which only last week was seen trading near the $40 handle. OPEC’s “informal talks” announcement has fueled speculation on Oil production cuts. However, traders are still aware of the failed talks in Doha earlier this year as members failed to agree on curbing oil production.
The announcement on Monday was part of a press release from OPEC president Mohammed bin Saleh al-Sada. He said that “higher oil demand is expected in the third and fourth quarters this year.” al-Sada said that since February, oil prices had experienced a significant improvement following the decline in production and the oil market hit by supply disruptions globally.
“The economies of major oil consuming countries are expected to improve which in turn would augment oil demand in the coming quarters, especially in preparation for the approaching winter season in the Northern Hemisphere. This expectation of higher crude oil demand in 3rd and 4th Quarters of 2016, coupled with decrease in availability is leading the analysts to conclude that the current bear market is only temporary and oil price would increase during later part of 2016,” al-Sada said in the press release.
“OPEC continues to monitor developments closely, and is in constant deliberations with all member states on ways and means to help restore stability and order to the oil market. An informal meeting of OPEC member countries is scheduled to take place on the sidelines of the 15th International Energy Forum which will take place in Algeria from 26 to 28 September 2016,” the press release concluded.
API reports suggest a mixed inventory report
On Tuesday, the American Petroleum Institute reported that there was a larger than expected build in US crude oil inventory. API reports suggested that crude oil inventories gained 2.09 million barrels, but also showing a 3.9 million draw in gasoline stockpiles and a 1.5 million draw in distillates. The EIA is expected to release its report later in the week, and analysts forecast 1.0 million barrels in draw down. The forecasts come after last week’s EIA weekly crude oil report showed a build of 1.4 million barrels beating expectations.
Oil Chart – Monthly
Oil prices have been posting steady declines since mid-July this year after prices rallied to test the highs near the $50 handle. Technically, the declines coincided with the doji candlestick pattern that formed in May on the monthly charts and validated by the hidden bearish divergence, which could see oil prices slide towards $37 or $38 a barrel in the near term.
However, despite the short-term bearish outlook in oil, traders will notice a potential inverse head and shoulders pattern on the monthly chart, with the right shoulder likely to form near $37 or $38 a barrel. This could signal a possible breakout to the upside if prices indeed show a reversal near the identified level. While $50 remains a psychological resistance for prices, a breakout above $50 could trigger oil prices to rally towards the $60 handle over the next 3 – 6 months time frame.
Alternately, if oil prices break down below the $37 or $38 handle we could expect the declines to fall back to $29 – $30 region, retesting Jan/Feb lows.
