Oct 14, 2022
VOT Research Desk
Market Analytics and Considerations
Despite a higher-than-expected increase in US stocks, the price of oil has stopped falling for three days. Crude may stay above the 50-Day SMA ($87.58) as a bull-flag pattern appears to be developing.
The Organization of Petroleum Exporting Countries (OPEC) just decided to “adjust downward the overall output by 2 mb/d” starting in November, which enhances the possibility of a wider retreat in crude prices. However, this move may prevent a larger decline in oil prices.
Due to this, the price of oil may try to reverse the slide from the current high ($93.64) as long as it stays above the moving average. It is also unknown whether OPEC will take more action to support crude prices given that US data points point to sluggish intake.
New data from the Energy Information Administration (EIA) show that crude stockpiles increased by 9.88 million in the week ending October 7 compared to expectations for a 1.75 million increase.
Additionally, the most recent Monthly Oil Market Report (MOMR) states that “world oil demand growth in 2022 is revised down by 0.5 mb/d.” These signs of waning demand may force OPEC to further adjust its production
It remains to be seen if OPEC will continue to limit production at the next Ministerial Meeting on December 4 as rising interest rates across advanced economies dim the outlook for energy consumption, according to the MOMR, which also states that “for 2023, world oil demand growth is also revised down to stand at 2.3 mb/d.
A closer examination of the EIA report reveals a reduction in the weekly field production of petroleum, with the number falling to 11,900K in the week ending October 7 from 12,000K the week prior. Until then, news from the US may affect oil prices.
In contrast, current circumstances may support oil prices as US production declines to its lowest level since July and as market players prepare for a shift in OPEC production, the price of crude may no longer respond to the negative slope in the 50-Day SMA ($87.58).
As long as oil prices remain above the January low ($74.27), the rebound from the September low ($76.25) may prove to be a significant turning point in the price of petroleum. Additionally, as a bull-flag pattern develops, crude may try to retrace its losses from the monthly high ($93.64).
The oil price currently trades at a new weekly low ($85.56) as it maintains a pattern of relatively low highs and lows. The inability to maintain momentum just above 50-Day SMA ($87.58) may cause crude to move toward the $84.20 (78.6% expansion) to $84.60 (78.6% expansion) area, while a split of the monthly low ($80.87) would allow for a move to the $78.50 (61.8% emergence) to $79.80
Nevertheless, as crude continues to stay above the moving average, a bull-flag formation appears to be developing, and a break/close above the 90.60 (100% extension) to $91.60 (100% growth) zone would put the monthly high ($93.64) on the radar.
The price of oil may move towards the 200-Day SMA ($97.29) if the Fibonacci occlusion between $93.50 (61.8% retracement) and $95.30 (23.6% expansion) is broken or closed above, with the next area of interest being around $100.20 (38.2% advancement).
