Sentiment Weakens on Crude Following Mixed Data – Selling Rallies Suggested

West Texas Immediate crude was trading flat on Thursday after mixed data from the International Energy Agency and the fact that Saudi Arabia and Iran – two big oil exporters from the Organization of the Petroleum Exporting Countries – showed no willingness to reduce their output.

In its monthly report published today, the IEA said that refiners around the world will process record volumes of crude in the third quarter of 2016 and oil production will fall behind demand by almost 1 million barrels a day. Deep output cuts by producers outside the OPEC cartel will help in clearing out the global glut which has dominated the oil market for almost 2 years and depressed crude price to record lows, even when Saudi Arabia, Kuwait and the United Arab Emirates pump at all-time highs.

Crude production in North and South America is expected to fall by 700,000 barrels a day in this quarter and may help cover for the additional output from OPEC. The conflict within the OPEC is the result of an uncompromising battle in gaining market share. Instead of defending price together, some members of the cartel are defending their own ground and pushing production to record highs.

With 10.67 million barrels per day from Saudi Arabia, 3.85 million barrels a day from Iran, 4.33 million barrels a day from Iraq and output records from Kuwait and the United Arab Emirates, the 14-nation cartel produced an eight-year high of 33.39 million barrels a day(combined) in July, which was 150,000 barrels higher than OPEC production levels in the month prior.

However, investors’ confidence may not be lifted soon as another outlook from the IEA coming a day earlier showed that weakness in global crude markets may persist until next year as demand slows seasonally and fuel inventory overhang. The Paris-based energy agency expects global demand to grow by 1.2 million barrels a day in 2017, a decrease of 100,000 barrels a day compared with last month’s forecast and down by 200,000 barrels a day from this year.


Fig: WTI H4 technical chart

Crude price rebounded lately from the lows near $41 per barrel but is still trading below the 20-period and 50-period price averages. The relative strength index remains under 50 even though it has surged to 46.9089 from recent lows. With the parabolic sar band hanging over the price action, the crude market is not expected to break above the resistance at the 23.6% Fibonacci retracement level at the moment.

Trade suggestion

Sell Limit at 42.10, Take profit at 41.35, Stop loss at 42.46

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