Rebound In Crude Prices May Reveal New Sales

By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

Last Friday, crude oil tested this year’s lows. On Monday, November 26th, there is a technical rebound underway in the commodity market, but it barely changes the global picture in terms of oil trading. Right now, the bears are obviously much stronger than the bulls.

The second sale of oil within one week was caused by the same fundamental factors as before, including the gas storage and crude oil inventories increase for 9 consecutive weeks, a global economic slowdown and the reduction in demand for commodities. In addition to that, prices are influenced by the crude oil production growth in the US and Russia along with plans to increase daily extraction volume at the Kirkuk Field (de facto Kurdistan, de jure Iraq). Several factors that may have supported the bulls, including, India’s plans to buy more oil and Saudi Arabia’s intentions to decrease extraction, haven’t stemmed the deep drop.

Among other things, the US dollar is constantly making its presence felt and oil faces additional pressure each time the American currency starts getting stronger relative to its global peers.

It should be noted that an oil price of $20-30 USD per barrel is not profitable to any oil producers or even politicians for that matter. For Saudi Arabia, the breakeven point in oil extraction is about $40 USD, for Russia, Kazakhstan, and several other countries – above $60 USD. Sharp fluctuations in oil prices are directly connected to the market oversupply and the fact that this imbalance may increase. It became obvious that expectations for the expansion of demand for this year were overestimated and now it’s important to avoid the same in 2019; according to these expectations, oil producing companies will adjust their extraction parameters. No one will want to extract oil and then keep it in oil tankers or in storage.

The current situation in the Brent market requires thorough analysis and assessment. As we can see in the daily chart, the divergence made the price break the support line of the previous rising channel and fall towards the support line of the projected channel, which is close to the retracement of 50.0% at $57. The next downside target may be the retracement of 61.8% at $50. The resistance level for the current movement is at $72.90.

The H4 chart of Brent shows a stable downtrend. At the same time, one can see a convergence on MACD, which may indicate a new correction in the nearest future. Another signal for this correction will be breakout of the local resistance at 62.73. The target of this pullback may be the resistance level from the daily chart at 72.90.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Having majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.