• 2 minutes Oil Price Could Fall To $30 If Global Deal Not Extended
  • 5 minutes Middle East on brink: Oil tankers attacked off Oman
  • 8 minutes CNN:America's oil boom will break more records this year. OPEC is stuck in retreat
  • 6 mins Iran downs US drone. No military response . . Just Destroy their Economy Completely. Can Senator Kerry be tried for aiding enemy ?
  • 6 mins Emissions Need To Be Halved To Avoid 3C Warming
  • 2 hours The Pope: "Climate change ... doomsday predictions can no longer be met with irony or disdain."
  • 43 mins Here We Go: New York Lawmakers Pass Aggressive Law To Fight Climate Change
  • 25 mins Coal Boom in Asia is Real and a Long Trend
  • 6 hours Summit in Pyongyang: China's Xi Says World Hopes North Korea-U.S. Talks Can Succeed
  • 7 hours Pioneer CEO Said U.S. Oil Production would be up to 15 mm bbls/day NOW if we had the pipelines. Permian pipelines STARTING Q3
  • 16 hours Solar Panels at 26 cents per watt
  • 2 hours Huge UK Gas Discovery
  • 21 hours The Magic and Wonders of US Shale Supply: Keeping energy price shock minimised: US oil supply keeping lid on prices despite global risks: IEA chief
  • 21 hours Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 21 hours US to become net oil exporter in November: EIA
  • 18 hours US Shale Drilling lacks regulatory body.
  • 20 hours Ireland To Ban New Petrol And Diesel Vehicles From 2030
Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

More Info

Will Asian Price Cuts Be Enough For OPEC?

The crude oil futures market is set to finish October sharply lower, however, the consolidation chart pattern on the daily chart suggests the market may be oversaturated with short contracts, setting up the market for a potential short-covering rally in early November.

Looking at the monthly crude oil continuous contract chart, one can see that the market is trading slightly below the mid-point of its five year range. The low in 2009 was $63.63, making a range with the May 2011 top at $115.70. The mid-point of this range is $89.67. This price is controlling the direction of the market at this time. Look for a downside bias as long as crude oil remains below this level.

Monthly Crude Oil Continuous

October’s low at $79.03 brought in enough buyers to produce a little short-covering the last two weeks of the month, suggesting oversold conditions. In addition, hedge fund managers and professional buyers may have also been reluctant to sell into a pair of bottoms at $78.75, $74.06 and the main bottom at $63.63.

This selling pressure may come during the first quarter in 2015, but the fundamentals are going to have to reflect a drastic increase in supply or decrease in demand. At this time it seems traders have become comfortable enough with the supply/demand situation to slow down the pace of the selling pressure.

At this time, no one expects a huge recovery in crude oil prices, but there are signs of consolidation taking place on the daily chart. Since the U.S., Russia and Saudi Arabia continue to overproduce, there should be ample supply around. Demand is questionable at this time because even the U.S. Federal Reserve has expressed concerns about the sputtering Euro Zone’s negative influence on U.S. growth. China’s growth numbers haven’t been impressive either.

Since the U.S. is not expected to cut back on production and Russia is expected to continue to sell oil to raise cash since the European sanctions have taken away its ability to borrow, the only concern for bearish traders is a potential cut in production by Saudi Arabia and the rest of the OPEC members.

Daily December Crude 31st Oct

Instead of cutting production to support prices, Saudi Arabia, Kuwait, Iran and Iraq decided on price cuts to Asia in an effort to increase demand. This action corresponded with the low in crude oil at $79.10 on October 16. There is no question that traders will be monitoring the activity by OPEC members during November ahead of its big meeting. So far there is no evidence of a price war and its members seem to be managing fine with crude oil at $80.00.

We’ll see over the next few weeks if the price cuts are enough to stabilize prices. If $80.00 fails to sustain this market then look for OPEC members to take matters into their own hands. This could mean the scrapping of the price cuts in favor of production cuts.

Another Thing to Consider ……

In a side note, this week featured a number of strangely timed articles and reports such as Bloomberg’s “Why Oil Prices Went Down So Far So Fast”, or the Goldman Sachs report stating that Brent crude could go down to $80 by mid-2015. Previous reports by Goldman Sachs had oil going to $100. Six-years ago, they were calling for $200 WTI crude. Contrarian Theory has me thinking that the market may be ripe for a reasonable short-covering rally. The recent fast 10% increase in the energy ETF S&P Select Energy Spyder Fund (XLE) may also be an indication that short sellers are getting ready to take profits and that the bears are getting ready to take a short-term break from pressing this market.

Oilprice - The No. 1 Source for Oil & Energy News