Crude oil prices have fallen again today, with both contracts extending their losses for the fourth consecutive session. At the time of writing, Brent was trading around $74.10, having been above $80.00 just a couple of weeks ago. WTI was trading around $64.50, more than $8 worse off compared to the high of almost $73 it hit on May 22.
Oil prices have taken a dramatic fall over the past couple of weeks after Saudi Arabia – the de facto head of the OPEC – strongly hinted at the prospects of increased supplies from the OPEC and non-OPEC in the second half of the year.
Speculators have rushed to sell oil ahead of the OPEC’s next meeting on June 22 in Vienna. The market clearly believes that the cartel will ease crude production cuts at this meeting.
The OPEC and 10 non-OPEC producers, including Russia, had agreed to limit their output in a deal which was set to expire at the end of this year.
But due to the increased levels of geopolitical risks to supply of Iranian and the recent falls in Venezuelan oil production, the agreement could be revised so that some members, most notably Saudi and non-OPEC member Russia boost their output to make up for the short fall in order to avoid a potential supply shock.
But it is highly unlikely that the OPEC’s cooperation with the 10 non-OPEC producers will end at this meeting. They will ensure to keep supply tight enough to avoid another 2014-style slide. This should keep a floor under prices in the long-term, even if US supplies are continuing to rise. Meanwhile the US driving season is going to kick into a higher gear this month, which should help reduce gasoline stockpiles and keep prices supported.
Technical outlook
The recent sharp falls means WTI has finally broken its bullish trend line which had been in place since the start of September last year. This has more or less confirmed the prices have topped out for now, although long-term support levels still remain intact. Still, the path of least resistance remains to the downside for now.
WTI is now approaching an interesting technical area between $62.55 and $64.10. This range marks the point of origin of the breakout to this year’s highs, with the lower end of the range also being the 2015 high, once a major resistance level. So, there is a possibility we could see oil prices stage at least a short-term bounce here.
However, if the above support range eventually breaks down, then WTI could extend its falls towards the next potential support levels at $61.10 or even $60.00. The former corresponds with the 38.2% Fibonacci retracement level, while the latter, as well as being a psychologically-important level, marks the 200-day moving average support.
The key long-term support level comes in around $55. A previous support and resistance meets the long-term bullish trend line here. But we are miles away from this level and WTI may never get to it before resuming its up trend.
Meanwhile in terms of resistance, the recently broken support and the back side of the broken medium term trend line comes in at $66.50. This is the first and perhaps most important line of defence for the bears. Above this, the 50-day average comes in around $67.70 which if broken could potentially lead to a recovery back towards $70 a barrel.
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