In the oil market, US crude futures rose to $56.24/barrel during the afternoon of the European session. This move came after Tuesday’s decline of more than 7%, extending oil’s losing streak to 12 straight sessions and the biggest one-day drop in three years. The fall in oil prices came after Trump’s tweet on Monday, saying:
“Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!”
For a long time, the US-China trade war took its toll on the growth of global oil demand; but with the introduction of US sanctions on Iran, supply has now taken the spotlight with the US decision to grant some nations waivers from its sanctions, allowing them to continue buying some of Iran’s crude oil. On top of that, rising US output and inventories continue to feed the bear market while investors are speculating what OPEC will do to address the issue.
On Monday, Saudi Arabia’s Energy Minister Khalid al-Falih expressed concerns for the market saying that OPEC has agreed that there was a need to cut oil supply next year by around 1 million barrels per day from October levels. While Saudi Arabia has proven, time and time again, that they are willing to change strategies in response to the market; carrying on this strategy to other allied nations may prove to be an uphill battle.
Just to give you a perspective of the severity of the sell-off trend, prices of options on futures contracts have reached 2-year highs as investors are looking to protect, or profit off, their positions from the collapse.
Oil futures exited consolidation on October 17, 2018, into a downtrend channel. This is further confirmed by the RSI indicator, which shows that the buying pressure among investors has either peaked at the 60 level, rarely at the 70 level.
Then on November 13, 2018, the channel broke through the channel at $56.70/barrel to a new recent low of $54.75. At that point, the RSI recorded levels below the 20-point threshold, indicating an incredibly-oversold market. Since then, investors have been taking the opportunity to buy the dip. But until we hear more news from the US and OPEC on how the glut will be addressed, we’ll just have to wait and see where the market is heading.