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The Two Conflicting Influences that Will Keep WTI Rangebound

Looking back at the last couple of weeks’ price action in WTI one thing stands out. OPEC or no OPEC, the benchmark U.S. oil futures contract attracts plenty of sellers above $51. I remain skeptical of the chances of any meaningful action from the oil cartel as a result of their “agreement to agree” on action on production to support the price of oil, and it seems that others are coming into that camp, but if some reports I have heard from traders are to be believed that is not what put such a firm top on WTI above that level. Those reports indicate that the selling came from producers hedging at prices over $51, and if that is the case the path to further gains looks like a seriously uphill battle.

(Click to enlarge)

If we look back even further to when WTI was declining rapidly last year, though, that should not come as any major surprise. Many, including, I will freely admit, me, said at that time that the price declines would quickly lead to a reduction in the rig count and reduced supply, which would in turn cause a fairly rapid rally. However, that didn’t happen until oil was trading substantially below $50, which gave an indication that at around that level even relatively expensive projects were still profitable. Given that history the fact that the low $50s are providing such determined resistance points is only logical. It is just the market working exactly how it should do in theory…higher prices encourage production,…

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