Oil is finding some reprieve but supply issues aren’t going away just yet
Just when you think oil can find some relief from talks of too much supply, the inventory build build earlier today nips that in the bud. The only positive news for oil now is that OPEC+ is said to be mulling over a larger production cut – reports now saying between 1 mil to 1.5 mil bpd – than what was touted by Saudi Araba (1 mil bpd) earlier in the week.
However, despite the headline, an imminent rebound in oil prices isn’t a sure thing for the time being. Saudi Arabia is certainly one of those that will get on board with the proposal but Russia so far has been keeping mum on whether or not they will want to join in on that.
As for oil prices itself, the steadiness after the decline on Tuesday comes as price meets support from the 61.8 retracement level @ $55.36 and the November 2017 low @ $54.81. Those will be key levels to fend off any downside move for the time being before a plunge to $50 will happen.
So, what’s next for oil now?
It’s going to be all about headlines, or the lack thereof. If we start to get more headlines on higher production cuts and more countries talking them up – particularly Russia – oil should see further relief ahead of next month’s OPEC+ meeting in Vienna. The production cuts will kick into effect next year but stern talks of implementing them with a possible promise to cut even further will no doubt help boost prices in the near-term.
On the flip side, if there is a seemingly lack of headlines, you get the sense that oil will continue its struggle as we close out the month. Fall below the key support levels above and the slippery slope continues. Sentiment is fragile now and it would take more talking up from OPEC+ to help limit the downfall in my view.
After yesterday’s positive headline, price has struggled to build any meaningful upside momentum. That indicates the bearish sentiment is still relatively prevalent. I’d be watching for a break of those support levels for a move towards $50 as the next key trade, but in the meantime, be wary of headline risks.