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Chart Of The Day: Oil Faces Strong Headwinds 

By Fawad RazaqzadaCommoditiesOct 01, 2021 14:17
uk.investing.com/analysis/chart-of-the-day-oil-faces-strong-headwinds-200498247
Chart Of The Day: Oil Faces Strong Headwinds 
By Fawad Razaqzada   |  Oct 01, 2021 14:17
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This article was written exclusively for Investing.com

While there is talk of crude oil reaching $100 per barrel (and some even calling for $200) amid concerns over a supply shock, I reckon the greater risk is that prices will head lower from here. 

Hurricane-hit production declines in the US have been almost fully restored and oil stockpiles ended a run of 7-week drawdown with a sizeable 4.6 million barrel rise last week. Meanwhile, the OPEC+ is meeting on Monday to address some of the supply risks. The group will most likely try to ease pressure on oil consumer nations such as India and China. 

One option that the OPEC+ might opt for would be to double the expected November production level increase—that is 800K bpd—and then, depending on the situation in the next couple of months, leave things unchanged in December. The group had already decided to increase output by 400K bpd for October at its previous gathering.

While refusal to do anything might provide oil prices a further shot in the arm in the short-term, this will only come back to haunt OPEC in the longer term outlook, as rising oil prices and in turn even more inflation could, for example, trigger fresh currency crises in some emerging market economies, crippling demand for everything, including oil. 

Speaking of demand, I reckon the ongoing supply bottlenecks, high energy prices and inflation are already causing a slowdown in the global economy. We have already seen Chinese data come in on the softer side in recent months, but there is a risk that other, more advanced economies, might start feeling the pinch too.

Meanwhile emerging markets are facing both higher inflation and even more weakening purchasing power due to their currencies being hit. Demand from countries like India and Pakistan could slow in the months ahead. 

There is an even more pressing issue to consider. Investor sentiment towards risk has taken a U-turn amid rising dollar and bond yields. There is a big risk that if the stock market remains under pressure, we might see investors shun all risk assets—including crude oil. 

Brent Oil Daily
Brent Oil Daily

Brent oil has shown some tentative bearish signs after failing to take out the key $80 hurdle on a few occasions. For example, it formed a bearish engulfing candle on Tuesday, and the high of that day’s range has not been re-tested since. This suggests that perhaps the sellers have started to get the upper hand. However, what’s missing is some downside follow-through to scare away the bulls en masse.

Indeed, support in the $77.90 to $78.50 area has so far held on a daily closing basis. This area was previously resistance, as shown by the shading on the chart. A daily close below this area is therefore needed to tip the balance decisively in the bears’ favour after this week’s stalemate price action so far. If this happens, the path of least resistance will then be to the downside. As such I would expect near-term support levels such as $76 to provide only a temporary bounce. 

Chart Of The Day: Oil Faces Strong Headwinds 
 

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Chart Of The Day: Oil Faces Strong Headwinds 

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Comments (3)
Mo Ahmadi
Mo Ahmadi Oct 08, 2021 20:49
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so where is that strong headwinds mate?I honestly think you should stop posting your articles for a while you are getting it completely opposite directions. like your silver predictions. loads of good stuff on your article but you need to focus more on facts and not fictions on your charts. sorry to be blunt about it. All the best
Mo Ahmadi
Mo Ahmadi Oct 02, 2021 9:46
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and to just add.. i am not sure you even got your facts on the ground right!!
Mo Ahmadi
Mo Ahmadi Oct 02, 2021 9:43
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totally disagree Oil has a strong demand and for months to come will be short supply so the price will just go up. 100 is not unrealistic by next March. none of your analysis include the facts on the ground may be that is the reason you are getting it wrong mostly... Silver was one example. I suggest expan beyond the chart analysis and you might do better. All the best
 
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Disclaimer: Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
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