Will Crude see a rally to $73?
With the main OPEC event done with and Crude prices plummeting to multi-year lows, the price action since the start of this week saw Crude oil ease from its lows of $64 levels. Main stream analysts are starkly divided with one side calling for a further decline to $40, while the other is expecting to see prices stabilize to $80. The decline in Crude oil prices has had a snowball effect with most of the US Shale oil producers facing the heat as most of the energy and fossil fuel stocks taking a beating in the aftermath of OPEC’s decision.
Besides the US energy stocks, the falling prices have also taken their toll on the likes of economies that were heavily reliant on fuel production, namely Nigeria, which recently devalued their currency, the Norwegian Krone, the Canadian dollar which was subdued by the falling prices and most importantly Russia. Although comments from the Russian government confirms that their budgets are now being adjusted to $60 a barrel price, the country has already given out warnings that it would be hit by recession. The Russian Ruble weakened considerably after the CBR gave up supporting the price, trading as high as 53.59.
While the prices may have had a negative effect on the producing nations, countries importing Crude oil seem to be enjoying the low prices. IMF expects to see a boost to the global GDP next year as the US economy continues to tick higher, growing at a modest pace. Expectations for an ECB QE is also being seen as supportive of the Crude oil prices, as cheap credit could result in increased demand and thus help push the prices of Crude oil higher. It is being rumored that Saudi Arabia is willing to cut production provided all the OPEC and non-OPEC countries come together to cut production equally. Expect to see a bit more drama in the coming months.
Crude Oil Technical Analysis
Despite all the action in the past weeks, the Crude oil monthly chart actually failed to reach the final target of $62.45 and instead has staged a reversal. There are two possible outcomes at this point; one being the recent rally seen few days ago is likely to subside as prices resume their downtrend, which in this case could see price drop towards the target quickly. Alternatively, if the reversal is indeed confirmed (where in we see Crude oil prices close higher on a weekly basis), a modest rally towards the major trend line targeting the levels of 73 is most likely.
This alternate view is further substantiated by the H4 charts where we notice the price level of 73.71 being the major support level that was broken with little to no retest, whereas, the declines stalled right near the lower support trend line of the price channel. We also notice the formation of a bullish engulfing candlestick pattern right near this lower support trend line while current price action is forming up to be a bullish flag pattern, which is yet to be confirmed by a break out above 69.20
In the event the bullish flag does fail, we could expect to see support near the recent lows of 64.42, a break of which could finally target the monthly price objective to $62.45.