Oil Price Plunges Again As Supply Concerns Re-Emerge

Brent Oil prices slid to $48.47/barrel on Monday, after hitting an 8-month high of $50.00/barrel. The supply outages in Canada and Africa are diminishing, and supply is expected to reach pre-disruption levels soon. The re-opening of eight shuttered work camps in Canada triggered energy firms to restart production.

In addition, Iran has indicated plans to raise oil export capacity to 2.2 million barrels per day by the summer and has no intention of freezing output, at the upcoming OPEC meeting on the 2nd of June. Moreover, Saudi Arabia, the key OPEC member, has also maintained its oil production levels at record highs, in order to preserve its market share against Iran and other competitors. This has led to a chronic supply glut and a collapse in crude prices, and this factor still hangs over the recent rally.

In the U.S, the number of oil rigs was reported unchanged at 318 in the week ending on the 20th of May, after an eight-week decline. With the price moving up recently, drilling will again become economical for some U.S shale producers, which is expected to boost the oil-rig count and slow down the decline in local U.S oil production and supply.

Oil prices have also suffered a loss due to a stronger dollar. Today, Flash Manufacturing PMI data is due to be reported in the US. The Purchasing Managers’ Index in May is expected to rise to 51.0 from a reading of 50.8 in the last month, a positive sign for the US economy. Also on the schedule today, St. Louis Fed President James Bullard, a voting member who is considered a hawk, will deliver a speech in Beijing. This speech is anticipated to apply further upward pressure on the dollar and in turn push down commodities denominated in USD – such as metals and energies.

brent d1

Fig. Brent D1 Technical Chart

In general, Brent is on track to falling further, after hitting the resistance of 50.07 on May 17, the highest level since October 2015. RSI (14) has inched down to 62.0201, after getting into the overbought zone. The pair had rocketed into the overbought area and may pull back from this zone as the %K line (blue line) has already crossed over the %D line (red line) and has moved out of the overbought territory. However, the signal trend indicator is currently encouraging a long position. Overall, the commodity is expected to pull back slightly before any recovery.

Trade suggestion

Sell at 48.47, Stop loss at 46.33, Take profit at 49.51

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