The bullish impulse on the oil market is very strong. Nothing, including stability of the Crude Oil Inventories or the indicators that show the low demand for the oil, can’t knock the market down. Obviously, “bulls” are going after their long-term target.
From the fundamental point of view, they have all the reasons for this. Results of the September meeting of the OPEC monitoring committee showed that the countries that earlier agreed to freeze oil output implemented the agreement completely. Moreover, Libya and Nigeria would probably join these restrictions after reaching their internal oil extraction targets. Right now, these two countries are operating outside OPEC+ restrictions, but agree to the conditions.
Of course, this is just talking and overview comments so far. No one really knows how much oil per day is extracted by, for example, Libya. According to one source, it’s 900 thousand barrels, the other one says that 1.8 million. The difference is rather big, but Libya itself says that it hasn’t reached the target yet. When the target will be reached? They don’t know. The same can be told about Nigeria. In fact, both countries say that they agree to the OPEC+ strategy, but there may be no real cooperation within the general framework because they’re not interested in it.
This autumn, the OPEC will provide the commodity market with a lot of reasons to be volatile. In November, there will be a serious meeting in Vienna, where the member countries will decide what to do with the agreement after March 2018, when it expires. There is no “off-the-shelf” solution, but it’s becoming quite clear that the current solution is less and less efficient. It’s a great long-term risk for “commodity bulls”, but no one takes it into account yet.
At the moment, the market is filled with short-term drivers. Last Friday, they published the Baker Hughes Oil Rig Count report. Over the last week, the indicator fell again (-5 rigs), the sixth consecutive time, and right now the number equals to 744. However, the oil prices paid no attention to this statistics – the market is focused on its technical targets.
In the meantime, the “bullish” impulse remains pretty strong. The CME futures show that the volume of long positions of large speculators, who are counting on the oil prices increase, had increased up to four weeks’ peak by September 19th and was 208.3 thousand contracts, while the volume of short positions had decreased up to four weeks’ low and was 128.6 thousand contracts.
From the technical point of view, one can see that the Brent prices have been moving inside the uptrend since early summer. We should also note that the instrument is getting closer to the upside border of the range, where it may start a new correction towards the downside one. The main resistance area to be tested is the range between 57.50 and 58.50. If the price breaks this area to the upside and fixes above it, the instrument may continue growing to reach 64, 67, and the next psychologically-crucial level, 70.
Author: Dmitriy Gurkovskiy, senior analyst at RoboForex
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.