Crude oil
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Crude Oil Prices Flirt with $69 per Barrel as OPEC Winces

By:Thomas Westwater

But bulls are continuing to wait for the proper entry point to invest

  • Crude oil prices have given up early gains and gone negative in Wall Street Trading.
  • OPEC leaders are taking steps to stem the slide, but further action is likely required.
  • The technical outlook remains weak, as bulls consider potential entry points.

Crude oil prices (/CLF4) trimmed early gains and are sinking below $69 per barrel despite broader support in equity markets. Buyers briefly returned this morning but couldn’t sustain the bid despite prices already being heavily sold over the past week.

Crude Oil outlook has weakened considerably

Demand for fuel has weakened for several weeks now. According to GasBuddy’s Patrick De Haan, U.S. gasoline demand fell by 1.4% yesterday from a week ago and 5.5% below the average of the prior four Wednesdays. While that’s a welcome relief for consumers because it reduces at-the-pump gas prices, it isn’t so welcome for oil bulls. A reduction in fuel consumption translates into less demand for oil.

The weakened demand is also visible in inventory data for fuel products. Gasoline stocks increased by 5.42 million barrels for the week ending Dec. 1, according to the Energy Information Administration (EIA). Gasoline futures (/RBF4) dropped nearly 4% on the news. Distillate stocks also rose, increasing by 1.27 million barrels.

The supply side may not offer much relief for subdued prices either. Last week, Russia and the Organization of the Petroleum Exporting Countries, collectively known as OPEC+, agreed to voluntary production cuts of 2.2 million barrels per day (bpd) that will extend through the first quarter of next year. That includes Saudi Arabia and Russia extending their previous voluntary cut of 1.3 million bpd.

The market expected more, however, which was evident by how crude oil prices sold off after the announcement. That prompted a joint response today from Moscow and Riyadh, which called on other OPEC members to cooperate with the production cuts. Still, prices were only slightly higher through afternoon New York trading and remained below $70 per barrel.

Will we see further action from OPEC leaders if prices continue to slip? Probably. But what can they do? For starters, they could extend the voluntary production cuts, deepen them in volume and/or increase enforcement measures among themselves. Still, the U.S. continues to produce at a record high, and growth in China is softening per the latest trade data, both of which complicate things for the cartel.

Technical Outlook shows more pain to come but potential buying opportunity

The technical chart for oil is an ugly one. Prices are trending below the key moving averages and oscillators are breaking lower. However, there are potential support levels around the 64-66 zone, which were established earlier this year, when buyers stepped in from March to June.

Traders may want to wait until prices decline to or near these levels before establishing a position. Alternatively, selling a put spread could also provide a way to play oil on the neutral to bearish side while taking advantage of the recent volatility.


Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater 

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