Can Crude Price Surge Above The 61.8% Fib. Level? Past Congestion, Fears of A Failed Output Agreement Creating Risks

Oil prices retreated from yesterday’s highs in today’s trading, paring gains from four days of gains in a row after data from the American Petroleum Institute showed an expected builds in petrol and distillates while hopes of output freeze talks faded as Iran expressed no eagerness to join the agreement.

The API on Tuesday reported a draw-down in US crude stockpiles which declined by a “more than expected” 1 million barrels. However, the good news was soon overshadowed by a 2.2 million barrels increase in gasoline stockpiles in the week ended Aug. 12, consolidating the opinion that the oversupply issues might be getting less severe in the crude market but may actually be growing in the market for refined products. Official inventory data from the US Energy Information Administration is due to be reported later today. Economists expect to see an increase of 0.3 million barrels in inventories last week – the smallest advance since U.S explorers/producers came back into the market in the week through July 22.

Elsewhere, according to Nigeria’s Petroleum Minister Ibe Kachikwu, the country’s losses in daily oil production have risen from 700,000 barrels to 900,000 barrels per day due to militant attacks. The federal government is in talks with the militant groups who are responsible for the attacks in the Niger Delta, in an attempt to put an end to the conflict which has been caused by the unfair sharing of oil revenues between local communities and the militant groups. Beside Nigeria, Angola’s daily crude oil exports are forecast to drop by 366,000 barrels to a 10-year low of 1.43 million barrels in October, as a key export grade enters maintenance.

Another major oil producer that is witnessing an oil crisis is Venezuela. This OPEC member’s output was down by 300,000 barrels a day in June while producers running new projects exploring oil in the region called the Orinoco belt are in fact requesting the country to import crude oil from other exporters. The reason for this seemingly strange request is that the output from the Orinoco belt is heavy crude which is less desirable compared with lighter grades of oil. Therefore, to make it more profitable and viable for the market, producers from Venezuela will have to blend their crude with higher-priced light crude oil varieties.

In spite of all these output falls, the oil price could not shrug off its burdens as Iran does not seem ready to give up its war for market share. An Iranian press official on Tuesday said that the country had not made up its mind about attending the meeting next month where all key producers are going to be in attendance. Further, the country is still working with the plan to ramp up its production back to the pre-sanction levels — between 4 million and 4.2 million barrels a day. That would be another 150,000 to 350,000 barrels per day pumped into the market.

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Fig: WTI D1 technical chart

The price of WTI Crude Oil continues to head up this week, after advancing in the last four consecutive trading sessions. The commodity has broken out above the descending trendline resistance at 45.95 and is moving towards the 61.8% retracement at 46.88. Regardless of the solid support from the two MAs and parabolic sar band placed below the price action, along with a bullish RSI, the price may trade  cautiously around the 61.8 fibonacci level, as it is a one of multiple overhead resistances from the past.

Trade suggestion

Sell Limit at 46.88, Take profit at 46.00, Stop loss at 47.27

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