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Oil market: Is this the top we had in mind?


29 October 2021

Despite Oil prices correcting lower in the previous days, the commodity continues to be priced at yearly high levels at the moment. The move in the previous days implies the market is vulnerable to unpredicted or changeable circumstances which of course can be filtered by traders to form a strategy. In this report we will be presenting a detailed summary of the current and most significant fundamentals relating to the Oil market. In the end our closing will consist of WTI’s technical analysis in order to provide a complete analysis of the market from different perspectives.

The weekly Oil market data is almost always considered by Oil traders, as it could provide information on the most recent changes in demand and supply of the commodity. On Wednesday the Energy Information Administration’s (EIA) Crude Oil Inventories indicated a substantial surplus of 4.3M barrels. After the release of the figure WTI’s price followed up with some bearish tendencies which indicates the surplus may have influenced traders and especially the bears. A very similar scenario was played out on the 26th of October with the American Petroleum Institute weekly inventory levels indicating a surplus of 2.3M barrels which again invited bearish tendencies for WTI. Moreover during the previous Friday the weekly Baker Hughes Oil rig count pointed to 443 active oil rigs two less than the previous figure. A decrease in oil rigs has not been observed since early September yet this can be a temporary happening.

The situation on the OPEC front remains unchanged as the group has rejected urges to increase supply considerably, which have kept Oil prices very high. On a separate note, yesterday a report by Reuters implied that Iran’s nuclear deal is back on the table. Iranian officials have stated in the past days that negotiations could start by the end of November. The news is positive for the Oil market as a supposed arrangement of Tehran’s nuclear program can allow Persia to restart selling its own Oil to the markets.

This scenario can increase global supply considerably thus bringing prices lower as the market could be more balanced. The news could be supporting a bearish sentiment for Oil prices which were lower in the past two days. This subject is worth keeping an eye on as the developments could keep traders in an active state probably creating volatility for Oil prices. The matter could be crucial for the Oil world in general as a positive outcome could possibly alter the balance of power in the market.

As the winter season continues to get closer, we could expect demand for Oil to remain elevated for most of the world. Of course this estimate is based on some ambiguity as it really depends on how cold it will actually be and on the weakening pandemic’s course. Demand for Oil could vary under different scenarios yet energy strategists seem to require more time to investigate the real circumstances and form a more decisive opinion. Yet in the meantime if Oil prices continue to move higher, they raise the fear of impacting the market in a somewhat awkward effect. If Oil barrels become too expensive demand can also be impacted as consumers may not be able to buy at higher prices. In this case Oil prices could be in for a considerable correction lower based on a logical perspective of a decreasing demand. Finally, in our opinion the fundamentals of the Oil market seem to support higher prices for now.

Technical Analysis

In the latest sessions we have seen a bounce off the currently noted (S1) 80.45 support which could be an indication that the market sees the line as the first support to be tested. A support even lower could be the (S2) 79.00 line that was tested previously in October while the (S3) 77.65 is in our opinion the lowest of levels to the downside. If the bulls take the initiative then the (R1) 82.50 resistance could be attempted first. Higher, the market seems to gravitate towards the (R2) 83.70 while the highest level reached so far in 2021 and a multiyear high level remains the (R3) 85.00 line.

After the recent selloff, WTI seems to have breached its upward trend line that was on ongoing since August. This can be evidence for further bearish tendencies. However, the RSI indicator below our chart remains above 30 for the time being, indicating the recent selloff could be continuing in the short term.

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