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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Oil Awaits OPEC Action As Markets Digest Trump’s Unexpected Win

OPEC

December WTI Crude Oil futures posted a two-sided trade this week as investors reacted to the traditional fundamentals and to the election of Donald Trump as president.

After a one-day reprieve due to a positive reaction to President-elect Donald Trump’s unexpected win in Tuesday’s election, oil prices fell at the end of the week as investors returned their focus to oversupply concerns, and whether OPEC will be able to reach an agreement to curtail production later this month on November 30 in Vienna.

At this time, it’s all about supply. Earlier in the week, the U.S. Energy Information Administration reported a 2.4 million-barrel build in domestic crude inventories to 485 million barrels the week-ending November 4.

OPEC meets in Vienna on November 30 for formal talks on production cuts. It has been trying to come to an agreement with non-member, including Russia, but doubts continue to linger over whether they can come to an agreement.

The tone of the market is still negative and the price action suggests a sideways to lower trend is likely until the OPEC meeting at the end of the month. Conditions could change drastically if there is any hint of a deal in the works to curtail production. Oversold technical conditions may also trigger near-term short-covering rallies.

On the negative front, the International Energy Agency (IEA) said this week the global market will remain in surplus unless OPEC can reach an agreement at its November 30 meeting. “If the supply persists in 2017, there must be some risk of prices falling back,” the IEA said in its monthly report.

Although doubt persists that anything will be done to cut output, there is still some hope. Late this week, Russian Energy Minister Alexander Novak said he saw higher chances of reaching a deal than before, and that global crude output could be frozen at November levels if an agreement is reached.

As far as the long-term is concerned, investors are still digesting the impact of the election of Trump, on future prices. Some believe that his anti-trade stance would lead to lower oil demand growth and defer a recovery in oil markets.

Technical Analysis

(Click to enlarge)

The main trend is down according to the weekly swing chart. The trend turned down last week when the market took out the previous main top at $43.77. If the selling continues then look for the break to extend into the next two main bottoms at $41.58 and $39.70.

The market is also straddling the December 31, 2015 close at $43.83. This proves that the market has gone nowhere this year.

The main range is $34.06 to $53.62. Its retracement zone is $43.84 to $41.53. This zone was tested this week. Once again since $43.84 represents the mid-point of the entire year’s range, the price action is telling us that the crude oil market is fairly priced at this time.

The key Gann angles to watch this week come in at $44.22 and $44.81. A sustained move under $44.22 will indicate the presence of sellers. A sustained move over $44.81 will indicate the return of buyers.

Forecast

Combining the Gann angles and the retracement zone tells me that the two most important levels on the December WTI Crude Oil weekly chart are $44.81 and $43.84. I don’t think the market is going to trade in a $1.00 range next week, but it is possible. The tightness of the range created by the support and resistance levels suggest investor indecision and impending volatility.

If the selling comes in strong enough to take out $43.84 with conviction then look out to the downside because the next support target is $41.58 to $41.53.

If the buying is strong enough to overcome $44.81 with increasing volume behind it then look for a possible extension to the upside. The next potential target is a downtrending angle at $48.22.

The weekly chart indicates there is plenty of room in either direction. This suggests the next move will be determined by a major news event. So watch the news next week for perhaps a major announcement from OPEC ahead of its formal meeting in Vienna on November 30.




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