For weeks, investors had been focusing on whether OPEC will extend its deal with other major producers including Russia to extend its strategy to cut production, trim the excess global supply and stabilize prices. However, the last two weeks, the major influence on the crude oil market has been rising U.S. production. This week, questions about demand have also been thrown into the equation.
If we assume that the supply and demand news is offsetting or balanced then I think we can build a strong case for prices to become balanced over the near-term. Since the rally started at $43.39 and we may have hit a top at $58.14 then it is possible that we could correct back to its 50% level at $50.77 over the near-term.
If this occurs then it may give investors a chance to reassess the fundamentals and decide if they should continue to buy, or increase the selling pressure.
Based on the news this week and the price action, I think there is a very strong possibility that crude oil will break into this price level.
Key Issues Driving the Price Action
Simply stated, there is enough evidence to conclude that the OPEC-led plan to limit production is working. However, it is moving too slowly to achieve its goal to cut supply below the five-year average in a timely manner. Therefore, it feels it needs extend the deal beyond the March 2018 deadline. This is likely to take place when the cartel meets on November 30.
The price action since June indicates that…