WTI Crude Oil prices could target $26 – $25.5. OPEC report paints a grim picture.
The rally in Oil prices last week were short lived as WTI Crude Oil broke the crucial 30 – 29.5 support level, which marked the head and shoulders pattern off the 4-hour chart time frame. Fundamentally, Oil prices remain bearish despite continuing rumors of cutting Oil production levels. No consensus has been reached yet with Russia, Iran, and Saudi Arabia in the forefront of the discussions. The main issue at hand being that despite the talks of cutting Oil production, no Oil producing nation has come forward to take the leap, leaving the question of Oil production cuts in limbo. Iran has already ruled out production cuts as it justified its stance by noting that the country needs to make up for its lost market share. It is quite obvious that while a coordinated production cuts might continue to hit the newswires, it is unlikely that there will be any real follow through on the plans.
Yesterday, the weekly US Crude Oil inventories report showed a decline of -0.8 million barrels in stockpiles. Oil prices initially spiked on the news to post a high to $29.16, but the bounce was short-lived as prices turned bearish quite quickly. The weekly inventory report shows the declines after the previous two weeks saw a more than expected build-up in Oil inventories. Even the weaker US Dollar saw in recent days also failed to help curb the declines.
Previously, an OPEC report showed that Oil supply surplus in 2016 will increase to 720k barrels up from the implied 530k from a month ago. On the demand side, OPEC expects a modest decline from 31.65 million barrels per day to 31.61 million barrels per day. The report also showed that non-OPEC production would contract by 700k billion barrels per day, up from the previously forecasted 600k bdp.
Crude Oil Technical Analysis
The 4-hour chart for Crude Oil is likely to garner a lot of attention after a head and shoulders pattern was formed over the past weeks. The neckline support at 30 – 29.5 was identified, where prices broke down quite strongly earlier this week. The break of the neckline opens up further declines in Crude Oil prices with a test to 26 – 25.5 coming in as a measured move target of the head and shoulders pattern.
The daily chart for Crude Oil is bearish, which is now into the sixth day of decline after posting a high above $33.15 on 4th February. For the moment, prices remain strongly biased to the downside, with Crude Oil inching closer to the $20 handle called by Goldman Sachs a few months ago. Any potential bounce off 26 – 25.5 could see a retest back to the head and shoulder’s neckline which could come in as resistance.