Market Dynamics as Crude Hovers at a Pivotal Range between Support and Resistance
By Chinedu Okoye
Crude's Weekly Ride:
Crude has had a wild ride in the week rising to almost $76 and $74 for BRENT and WTI respectively. Spreads have tightened indicating a strong bid for WTI Crude, as both benchmarks have mirrored each other in the week. Brent closed below last week (Friday November 1st) close whilst WTI rose above its technical resitance levels.
We explain what we make of the price movements using a blend of fundamental and technical factors we believe may be guiding market decisions. Also we use these to make a refined thesis, essentially maintaining our stance on the commodity.
Fundamentals In Focus:
Potential Bullish Factors:
• US Supply might not be sufficient to move supply given the volume of reserves, in any case the EU Russian boycott will gulp up the available supply going into the winter.
. US Oil producers may also take advantage of a stronger global market position.
• Expectations of a soft landing in the US, and a stronger USD should trade wars emerge between US and China (which would increase the value of the dollar) could be driving demand.
Even in the case where lower rates make the dollar weaker, and trade wars don't ensue, the inverse correlation between Crude prices and the USD in certain circumstances raises the prospects of higher than the JPMorgan and Citi prediction.
• An OPEC plus decision to hold or cut production quotas in December, would be positive for prices.
Potential Bearish Factors:
• The economy detoriates further in advanced countries, especially Crude demand heavyweight China. (We do not suppose trade wars would be immediate or affect Chinese industry as much as to be a deciding factor in demand volumes).
• OPEC plus decides to focus on market share and ramp up production or give indications of it, as a market glut from OPEC plus as well as the US would out downward pressures on prices.
Analysis:
The potential bullish factors are driving up prices at or below prescribed support levels, and the potential bearish factors put a lid Oil prices at or above resistance levels.
With the supply fundamentals balanced out by demand fundamentals as described above, Crude is likely to stay within range until the December OPEC+ meeting, and as other fundamentals play out. This is supported by the technical indicators analysed below.
Technical Indicators:
Crude By the Numbers:
From the table below, crude fell in the week between Friday October 25th close, with both benchmarks moving from levels above resistance towards support levels. With both benchmarks dropping, the average also saw a 2.90% decline in the week.
On the week leading up to yesterday's close, both benchmarks climbed marginally raising the average +0.70% to $72.13, at the close. The two week drawdown in the benchmark average is due a BRENT price decline mirrored by a similar move in WTI.
CRUDE PRICE MOVEMENTS (at the close from October 25th through November 8th):
25/10 | 01/11 | 08/11
BRENT: $76.05 $73.65 $73.87
WTI: $71.10 $69.64 $70.38
AVG: $73.78 $71.65 $72.13
SPREAD: $4.65 $3.61 $3.49
BRENT has fallen -2.87%, at the close, in the two weeks from November 25 to November 8th. WTI has shed only -1.01%. Though both prices declined by the November 1st close from the previous week, WTI has risen +1.06% from last weeks close and BRENT a meager 0.24%.
The larger drawdown in BRENT relative to WTI and its marginal rise (by only by a fifth) as much as it's counterpart, led to both a the tightening of the spread and the rise in the average. from which we draw the conclusion that although demand may be cautious, crude is strongly supported at the current range.
New Support - Resistance Level;
BRENT: $71-$73
WTI: S67-$69
AVG: $69 - $71
SPREAD: $3-$4
Remarks and Recommendations:
The figures show WTI with the stronger momentum as the market awaits OPEC+ decision on supply quotas in December. Higher US and Non- OPEC Supply, would be extremely bearish for both benchmarks, especially if OPEC+ reacts in kind or holds supply steady.
In the same vein, more economic uncertainty or a continued slowdown in industrial activity, would equally be headwinds, but a soft landing emanating from lower rates and supportive monetary policy would be bullish for Crude.
In balancing this expectations, the market is stuck between support and resistance as crude remains range bound. This is reflected in the market price movements in the week as technicals signal a pivotal moment from which prices could break out below or above the current range.
For now the market seems to support prices at or below support as demand pulls back when resistance is breached, as seen in the week m, and on the 28th of October following the previous week's close.
Above or beyond these levels present levels presents short and long entry opportunities shorterm, and the tightened spreads over the weeks makes for the basis of our expectations of strong support at theabove range –and/or a consistent trend upwards long-term.
Comments
Post a Comment