December Crude Oil tested support on Monday, October 24, 2016, as Iraqi demands to be exempted from production cuts got louder. The Iraqis are the second largest oil producer in OPEC.
Last month they produced more than 4.7 million b/d of crude oil. They will continue to do so and will increase production as needed. Iraq has been up front since the agreement was first announced that they wouldn’t comply with it and are now justifying their decision, with the Iraqi oil minister saying Iraq needs more money to fight the Islamic State militants. They also say their real output should be at 9 million b/d.
Their production has been curtailed because of all the wars they have been involved in since the 80’s. They aren’t cutting back. They support OPEC policy ad unity, but not at Iraq’s expense. So just like OPEC cheerleader Iran, they are all for production cuts, and believe everyone should cut… But them.
OPEC believes that $55-$60 is a fair price to pay for crude oil; it will bring stability to the market. They, however, refuse to freeze/ cut production to bring supply/ demand into balance to achieve their price objective. Even if they are able stabilize their production at the agreed upon levels (32.5 to 33 mb/d), will Russia do the same? It’s iffy at best.
Will the US slow production? No way! They will increase production and are working to achieve that with every uptick in price. When I say will OPEC freeze/ cut production, I mean will Saudi Arabia freeze/ cut production? They have historically been the swing producer, increasing when price rose too much and decreasing production when it got too low.
Saudi Arabia started the production glut by not cutting as US production increased. They wanted to destroy the US shale industry with low prices. It didn’t work. It slowed US production, but the US shale industry made improvements in production and costs declined for surviving US producers.
The US shale industry is poised for a revival. Rig counts have increased and are getting ready to produce oil. The demand side remains questionable.
Crude Oil was able to hold the 49.36 support level as the low (49.62) was above support. Crude oil shot up from the low and traded to resistance up at 50.65, reaching 50.68. Crude Oil ended the day at 50.49. Trendline resistance is at 50.65 and a break above here has 51.17 as the next resistance level. Trendline resistance is up at 51.85 and a break out from here puts the recent high of 52.22 in jeopardy.
A break from here and crude oil could test 53.50. Support is at 50.00 and if Crude oil breaks down from here, it could test 49.71 and then 49.36. Trendline support is at 48.54.
- High 50.98
- Low 49.62
- Last 50.49
Daily Pivot Points for 10/25/16
- R2 51.72
- R1 51.11
- PIVOT 50.36
- S1 49.75
- S2 49.00