Investors Fleeing From Crude Even As Supply Controls Look Likely – Whats The Mystery?

Crude oil started the new week in positive territory after the clashes in Libya eased concerns over a global supply surplus amidst mounting signs that major oil producers are close to an output capping deal. However in a strange twist, oil investors are moving towards the sidelines as the meeting between OPEC and non-OPEC nations to discuss the freeze agreement draws closer.

Fighting between forces loyal to east-based military commander Khalifa Haftar and the local Petroleum Facilities Guard unit at the port of Ras Lanuf forced the tanker Seadelta to suspend the loading of 781,000 barrels of oil for shipment to Italy. Clashes in Libya have halted the loading of the first oil shipment from the port of Ras Lanuf since 2014, and turned a country which had pumped 1.6 million barrels per day into the second-lowest producer in the OPEC with an output of only 260,000 barrels a day in August.

Speaking at the end of a summit of the Non-Aligned Movement on Margarita Island on Sunday, Venezuelan President Nicolas Maduro stated that a deal to stabilize the oil market could be announced as soon as this month.

Iran’s President Hassan Rouhani, speaking on the sidelines of the same conference, said “Tehran welcomes any move aimed at market stability” but did not forget to mention the the words “fairness” and “fair quota” for all oil producers. OPEC’s third-largest producer has been ramping up its output after the sanctions imposed by the West were lifted in January, and is bargaining with OPEC on possible exemptions from output limits.

According to Algeria’s state news agency APS, OPEC Secretary-General Mohammed Barkindo said he was optimistic about the meeting that is to be held on Sept. 26-28, and OPEC may convene an extraordinary formal meeting if oil ministers reach a consensus on oil markets at the informal gathering on the sidelines of a conference of the International Energy Forum later this month.

Ahead of the meeting, speculators trimmed their positions on both short and long futures contracts. According to the Commodity Futures Trading Commission, wagers on falling West Texas Intermediate crude prices fell by 29,195 contracts to 101,079 contracts during the week ended Sept. 13. Long positions declined by 1.5%, bringing the net-long position 14 percent higher but reducing the total number of longs and shorts , also known as the Open Interest, to the lowest level since July.


Fig: WTI D1 Technical Chart

WTI crude has bounced back from two-month lows at 43.00 in early trading today. The bounce back follows a decline that took away 5% of the crude value. There does not seem to be any concrete sign that confirms or signals a reversal into an uptrend. Both MAs are currently placed above the price chart, not to mention the fact that the 20-day MA has crossed the long-term MA50 from above. RSI also remains in bearish territory and is not even close to the neutral 50 line. Thus, the current rally may be limited.

Trade suggestion

Buy Stop at 43.70, Take profit at 44.50, Stop loss at 42.65

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