Crude oil prices were trading weaker at week's end with higher-than-average volatility as investors positioned themselves ahead of a meeting between major producers, who are scheduled to discuss a potential production freeze this weekend.
The June crude oil futures contract looked as if traders were going to go into the meeting with an upside bias, however, sellers came in, triggering more than a percentage point after a report that Iran's oil minister Bijan Zanganeh won't attend the oil producers' summit Sunday in Doha, Qatar.
Scheduled to meet in Doha on April 17 are more than a dozen OPEC and Non-OPEC producers, led by Saudi Arabia and Russia. They are expected to discuss measures to limit production in a bid to support prices. Many analysts, however, are skeptical about the outcome of the talks and this is being reflected in the price action.
In general, industry analysts believe that if an agreement to freeze production is reached, it will probably not include any concrete figures or obligations. Nothing will likely be at risk in the event a producer decides at some time in the future not to comply with the output cap. This being said, the agreement will probably have no lasting effect on the current situation in the oil market.
If an agreement is reached we are likely to see a two-side reaction in the market over the short-run. Most likely, there will be a spike to the upside because of short-covering then the market will settle into a range before…
Crude oil prices were trading weaker at week's end with higher-than-average volatility as investors positioned themselves ahead of a meeting between major producers, who are scheduled to discuss a potential production freeze this weekend.
The June crude oil futures contract looked as if traders were going to go into the meeting with an upside bias, however, sellers came in, triggering more than a percentage point after a report that Iran's oil minister Bijan Zanganeh won't attend the oil producers' summit Sunday in Doha, Qatar.
Scheduled to meet in Doha on April 17 are more than a dozen OPEC and Non-OPEC producers, led by Saudi Arabia and Russia. They are expected to discuss measures to limit production in a bid to support prices. Many analysts, however, are skeptical about the outcome of the talks and this is being reflected in the price action.
In general, industry analysts believe that if an agreement to freeze production is reached, it will probably not include any concrete figures or obligations. Nothing will likely be at risk in the event a producer decides at some time in the future not to comply with the output cap. This being said, the agreement will probably have no lasting effect on the current situation in the oil market.
If an agreement is reached we are likely to see a two-side reaction in the market over the short-run. Most likely, there will be a spike to the upside because of short-covering then the market will settle into a range before resuming the downtrend.
If an agreement is not reached, prices are likely to break almost immediately given the high expectations ahead of the talks among investors.
The International Energy Agency said in a report on Wednesday that "any deal struck won't materially impact the global supply-demand balance" during the first half of 2016 as both Saudi Arabia and Russia are already producing at or near record rates.
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Technically, the June Crude Oil daily chart reflects the indecision ahead of the meeting with prices currently straddling a major 50 percent level. Basically, this price will act like a pivot. The market will show bullish tendencies if prices remain above the 50 percent level. It will show a downside bias on a sustained move below it.
The main range is $52.04 to $30.79. The high was reached the week-ending November 6, weeks before the formal OPEC production agreement meeting. The bottom was reached the week-ending January 22.
The 50 percent to 61.8 percent zone created by this trading range is $41.42 to $43.92. It helped stop a rally the week-ending March 18 at $43.17. This week's high at $43.69 occurred inside this range.
Looking at the current chart pattern, earlier in the week, traders had a strong upside bias as the market was in a position to breakout over the 61.8 percent level at $43.92. Going into the meeting, the market is testing the lower, or 50 percent level at $41.42. This means that sentiment is shifting to down ahead of the meeting.
The key level to watch for more aggressive speculators is the 50 percent level at $41.42. A sustained move over this level will indicate the presence of buyers. A sustained move under this level will indicate the presence of sellers. We could see trading on both sides of this level so be aware that the price action could be volatile.
More conservative traders may want to wait for a breakout over this week's high at $43.69 and the upper, or Fibonacci level at $43.92. Once again the volatility at this level will be high, but if it is overcome, the market has a clear shot at reaching the $52.04 main top.
If $41.42 fails as support, the market is likely to break back to $37.24 to $35.72. If the selling is strong enough to take out $36.57 then look for even more pronounced selling pressure if $30.79 a possible target.
If traders feel an agreement will have a neutral effect on the crude oil market then look for prices to remain range bound between $41.42 and $37.24 over the near-term.
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