Oct 20, 2022
VOT Research Desk
Market Insights, Considerations & Analytics
Despite an unanticipated drop in US stockpiles, the price of oil remains in a limited range, but in the coming days, a bull-flag pattern may form as crude seems to be turning back toward the monthly bottom ($80.87).
Oil prices retrace ahead of the monthly trough to maintain the form of a bull flag.
With the Organization of Petroleum Exporting Countries (OPEC) on track to “adjust downward the overall production by 2 mb/d” beginning in November, the recent string of lower highs and lows in the price of oil unravels as it remains above the weekly low ($81.30).
Even though the Biden Administration intends to release “15 million barrels from the Strategic Petroleum Reserve (SPR) to be delivered in December,” a significant reversal appears to be taking shape following the Ministerial Meeting earlier this month. However, it appears that the shift in OPEC’s production schedule will have a greater impact on the price of oil.
As OPEC’s most recent Monthly Oil Market Report (MOMR) warns of slowing demand, the price of oil may continue to respond to the negative slope in the 50-Day SMA ($87.01), but it remains to be seen how the organization will react to developments in the United States, where new figures from the Energy Information Administration (EIA) indicate robust demand.
A further decline in crude inventories may keep the price of oil afloat as market participants prepare for a slowdown in OPEC supply, according to the EIA update, which shows that crude stockpiles decreased by 1.725 million in the week ending October 14. This decrease was in contrast to forecasts for a rise of 1.38 million.
However, a more in-depth analysis of the EIA data reveals that weekly field production increased for the first time since August, rising to 12,000 thousand from 11,000 thousand in the week ending October 7. This development may give OPEC more room to modify its production schedule at the next Ministerial Meeting on December 4, as rising interest rates in advanced economies dampen the outlook for oil consumption.
Having said that, the rise from the low of 76.25 in September may prove to be a significant reversal in the price of oil as it defends the low of 74.27 in January. Additionally, a bull-flag formation may form in the coming days as crude appears to be reversing ahead of the monthly low of 80.87.
The price of oil may form a bull flag as it appears to reverse ahead of the monthly low ($80.87). The move back above $84.20 (78.6% expansion) to $84.60 (78.6% expansion) opens up the possibility of a further rise in crude as it appears to emerge from a descending channel.
A break or close above the 90.60 (100 percent expansion) to $91.60 (100 percent expansion) region will open the monthly high ($93.64), which is $88.10 (23.6% expansion).
A decline below the $78.50 (61.8% expansion) to $79.80 (61.8% expansion) region would, however, negate the bull-flag formation, putting the $76.50 (50 percent expansion) to $76.90 (50 percent retracement) region back on the radar.
