Following the recent bullish trend higher, oil prices closed off the four month high on Friday as fundamental issues continue to weigh heavily. This is coupled with ongoing uncertainty regarding OPEC and whether it will follow through on its comments to reduce supply, and if so whether this will be sufficient to reduce the current glut.
Much of Friday’s price action was seen as profit taking by the big operators following the ramp up net long positions in October, but which are now being unwound. The next OPEC meeting is scheduled for late November, with a projected cut in production to 32.50 million barrels per day from the current 33.6 million barrels per day.
Whilst this is the plan, Saudi Arabia’s Energy minister has already stated that oil supply should ‘not be cut too steeply’. It is against this context that various members are requesting special status, with Libya and Nigeria heading the queue, whilst Iraq has suggested it wishes to raise output.
The consensus view is that the current proposed cuts are unlikely to be sufficient to drive oil prices higher in the longer term. Additionally, with the rig count suggesting shale producers are preparing to increase ouput, this has all helped to cap the move higher.
From a technical perspective, last week’s move higher was supported with gently rising volume before Friday’s selling ahead of the three day weekend brought progress to a halt. Below we now have a minor platform of support in place at $49.50 per barrel which is currently being tested in thin markets today.
Overhead we have strong resistance in place at the $52.10 per barrel region, and this is likely to be the ceiling of any future advances for oil, with the VPOC firmly anchored at $47 per barrel. With markets closed today for Columbus Day celebrations, we are likely to see a quiet day of consolidation.