Oil prices rebounded on Wednesday, despite the weekly US EIA crude inventory data showing a smaller-than-expected drawdown in inventories. However, the recovery was short-lived, with the precious liquid giving back its gains on Thursday and trading even lower during the European morning Friday. The recent news that OPEC may not be fully complying with the production targets it set in May could be among the key factors weighing on prices.
Oil could remain under some pressure today, considering that the US employment report that is scheduled for release later today is expected to be strong, which could boost the dollar and thereby, weigh on the precious liquid. In addition, the Baker Hughes oil rig count that is due to be released after the jobs report could be another negative development for oil, if it shows that active US oil rigs continue to increase.
That said, the coming week could spell an entirely different story for oil prices. On Monday, OPEC and non-OPEC officials will meet in Abu Dhabi to discuss why some countries are falling behind in their pledges to cut production. Any signals that the cartel may take a harder line on members not complying with their quotas, could help prices rebound once more.
WTI traded lower yesterday after it hit resistance at around 50.00, a few cents below our resistance hurdle of 50.35 (R2). The slide brought the price back below 49.20 (R1) and at the time of writing, WTI is trading fractionally above the upper bound of the channel that contained the price action from the beginning of February until the 27 of July. Today’s jobs data could bring the price back below that channel bound, but that would just turn the outlook flat and not negative. We believe that a clear break below the short-term uptrend line drawn from the low of the 21st of June is needed for a switch to negative.
As such, even if the price re-enters the channel, as long as it remains above the short-term uptrend line, there is still a decent probability for a rebound. Monday’s Abu Dhabi meeting could prove the trigger for such a rebound.
