Saudi’s Minister of Energy and Industry, Khalid Al-Falih. Image via World Economic Forum
Crude oil futures contracts rallied to a fresh yearly high yesterday closing at $51.42 a barrel. The gains came for a second consecutive day after the API’s inventory report showed a surprise draw of 3.8 million. Analysts had expected to see a build of 2.1 million barrels instead. It followed by a speech from Saudi Arabia’s energy and industry minister who sounded optimistic that other countries would join OPEC in cutting oil production.
Keeping the bullish momentum going was this week’s inventory report from the EIA. Official data showed that US commercial crude oil inventory posted a draw of 5.2 million barrels for the week ending October 14 with commercial crude oil inventories reported at 468.7 million during the seven-day period. Just a week ago, EIA reported a build of 4.9 million barrels which came after nearly five consecutive weeks of drawdown in oil inventory.
The EIA report showed that gasoline stockpiles rose 2.5 million barrels which managed to reverse the 1.9 million draw in the previous week.
Saudi Arabia: Many nations willing to join OPEC to cut production
On Wednesday, Bloomberg reported Saudi’s Minister of Energy and Industry, Khalid Al-Falih stating that many countries were willing to join OPEC to cut oil production.
Speaking in London at the Oil and Money conference, the minister said, “We are going to work with our colleagues and the decision I think will be fair and equitable to all countries.” However, in contrast to his comments, Russia remains the only country that has so far re-affirmed its commitment to cutting oil production while other nations such as Mexico and Norway have opted out, besides the waiver for Nigeria, Libya, and Iran.
Al-Falih said that the oil markets were rebalancing and that it was signalling the end of the downturn. OPEC countries are expected to meet ahead of the November general OPEC meeting to finalize the terms of the agreement to cut production as decided in Algeria.
Is the worst over for oil?
For some hedge funds and institutional investors, the answer seems to be a resounding yes but comes with a caveat. Dimitry Dayen, senior research analyst at ClearBridge Investments, told WSJ, “If OPEC’s November 30 meeting in Vienna is a dud, then the market’s going to selloff.”
OPEC leaders, however, seem to be working hard to reaching a consensus with many unofficial meetings lined up ahead of the November 30th general OPEC meeting in Vienna where expectations are high that a new production cut deal will be formally inked. “There are lots of very important questions with no answers to date, and only six weeks to go before the next key OPEC meeting,” David Hufton, CEO of PVM Group said underlining the downside risks to crude oil prices.
A waiting game for oil prices
From a technical outlook as well, oil prices could be seen stalling as price approaches the weekly resistance zone near $51.80 – $50.00. If oil prices manage to close bullish this week, it will mark a 5-week winning streak for oil prices which exposes the risk to the downside as some investors would prefer to book their profits ahead of the November 30th meeting in Vienna.
The technical pattern on the weekly chart remains bullish with the inverse head and shoulders pattern being formed, which we have been tracking for the past few months. The breakout above $51.80 is essential to keep the bullish momentum going with the likely target to $70.00.
In the near term, oil prices are likely to enter another period of sideways price action. To the upside, the failure to clear $51.50 handle could weigh on prices over the coming weeks which could potentially expose the support at $47.00 – $46.50.
