Forex Trading Library

Crude Oil – Weekly Analysis, 17/09

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WTI rallies over 5% as EIA weekly inventories fall and expected slowdown in production from Non-OPEC countries!

WTI Crude Oil is enjoying a strong week with gains of 5.30% for the week at the time of writing. WTI Crude oil surged off the lows near 43.6 this week to rally to 47.50 yesterday. The rally in Crude oil prices comes as the weekly inventory report from the Energy Information Administration showed the US commercial crude oil stockpiles inventory falling 2.1 million barrels last week.

At Cushing, Oklahoma, crude oil declined by 1.9 million barrels posting one of the biggest declines in near 18 months. Besides the decline in the weekly inventory, data released earlier by the EIA showed that US oil production peaked in April at 9.612 million barrels per day. In a report released by OPEC, it noted that Oil production from non-OPEC countries was likely to decline based on Saudi Arabia’s strategy to keep production high in a bid to squeeze out expensive oil producers out of the market.

The OPEC report highlighted that US Shale oil producers were likely to be affected the most. The report was validated by the EIA’s report which suggested a slowdown in the US oil production on account of lower oil prices. OPEC expects US shale oil production to 800,000 barrels per day in 2015 while expecting a significant decline to 200,000 barrels per day in 2016..

Crude Oil Technical Analysis

Following up from last week’s analysis, Crude oil finally broke out from the bullish flag pattern rising above the critical 44.76 level. However, there is still some downside risks as current price action on the daily charts is showing a struggle near the previous support level of 47.81 – 47.28 which is likely to be tested for resistance. In the event the rally is capped here, Crude oil could potentially decline lower and threaten the support at 44.76. A break below 44.76 could eventually invalidate the bull flag pattern and could see the sellers come into the market yet again. We do expect to see a bit of a pullback to the bull flag ahead of a possible break of the resistance level above. This could potentially pave way for a test to the next main resistance at 51.51 region.

Crude Oil Daily Chart, 17/09
Crude Oil Daily Chart, 17/09

On the weekly chart, after two weeks of consolidation, Crude oil is attempting to close on a bullish engulfing note. Therefore, if we see a weekly close at or above current levels of 47.20, we could anticipate a further continued upside moment. On the weekly charts, the next main resistance is seen at 54. However, considering that prices are still trading below the falling trend line, a rejection at 54 could see prices decline back to lower levels towards 44.83.

Crude Oil – Daily Chart, 17/09
Crude Oil – Daily Chart, 17/09

Looking forward, the markets today are anticipating the FOMC event where the Fed may or may not hike rates. While it is a close call, the implications for the decisions could likely take a toll on the US Dollar Index, which in turn could affect Crude oil prices in the near term. A bearish outlook could potentially weaken the US Dollar which would support the rally in Crude oil prices.

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