Possible correction of oil quotes

17 November, 2017

I expected a correction of the oil price after its sharp increase during the last months. Bears dominated the oil market since the beginning of the week. The futures for the WTI crude oil decreased by more than 3%. Now, the prices of the black gold are fixing near the key support at the $55 mark.

There are a few factors that influence the dynamics of the oil market:

1) The forecast of the International Energy Agency. They lowered this forecast for the global oil demand growth by 100.000 barrels per day for this and the next year. It equals 1.5 million barrels per day for 2017 and 1.3 million barrels per day for 2018.

2) The inventories of the crude oil in the US are growing. Here are the U.S. Energy Information Administration report details:

  • inventories of oil: +1.854 mln barrels, while experts expected that they would decrease by 2,200 mln barrels;
  • inventories of gasoline: +0.894 mln barrels;
  • distillates stocks: -0.799 mln barrels;
  • production of oil: 9.645 mln barrels per day (+25.000 barrels per day);

The US is still increasing the black gold production.

Also, a possible extending of the OPEC pact about reducing the extraction of raw materials supports the oil prices.

Let’s look at the technical pattern:

  • Support levels: 55.00 USD, 54.00 USD, 52.50 USD
  • Resistance levels: 56.50 USD, 57.50 USD

The black gold prices are testing the 55.00 support level at the moment. The indicators don’t show us exact signals. The quotes have consolidated between 50 MA and 200 MA, they can be considered as strong dynamic S&R levels. The MACD histogram is near the 0 mark now. However, I don’t rule out a possible correction in the near future.

Conservative traders can wait for a correction of the quotes to the 56.50 resistance level. I recommend opening short positions, if the quotes reach this mark.

It is also advisable to sell oil, if its price fixes below the 55.00 mark. Taking profit is reasonable at the 54.00 mark. The black gold quotes may reach 52.50 in the medium term.

It also advise you to use a trailing stop for both positions.

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