The markets are likely to consolidate around current levels given the recent volatility on the ebbs and flows of trade and tariff prospects. Hence Risk-On was back in play Wednesday as renewed trade hopes overshadowed another batch of weak headline data on ISM services and ADP private payrolls. Indications that a Phase One deal is likely to be struck before the December 15 tariff hike encouraged the bounce on Wall Street after two days of hefty losses. Treasury yields shot back up too, unwinding much of Tuesday’s plunge.
Trade headlines will remain in focus while the unveiling of a large stimulus package for Japan will also put pressure on Europe, especially Germany, to follow and complement an already expansionary monetary policy with fiscal measures in order to prevent the economy from sliding into recession.
The OPEC meeting meanwhile has started today, with OPEC+ (which includes Russia) tomorrow. Further volatility is expected as there is still plenty of uncertainty around what OPEC+ will do on future output.
As we look forward the OPEC headlines, USOIL is trading steady at $58 lows after data yesterday showing a large inventory draw. EIA inventory data showed a 4.9 mln bbl fall in crude stocks, while the Street had been expecting a 2.0 mln bbl decrease, though the API reported a 3.7 mln bbl draw after the close on Tuesday. In contrast with the bullish crude stocks outcome, gasoline supplies, seen up 1.5 mln bbls actually rose 3.4 mln bbls, while distillate stocks were up 3.1 mln bbls, versus expectations for a 0.5 mln bbl rise.
The jump on USOIL yesterday though, even if it was consistent with inventories, it was actually driven by the trade headlines rather than data, anticipation of OPEC or even the headline that Iraq is a supporter of deal extension. Hence it seems that Oil traders have been weighing various factors the past 2 months, leaving a mixed outlook for USOIL price.
Despite the overall mixed fundamental picture around crude, the past few weeks, USOIL formed a decent upwards channel, by continuous higher lows and higher highs. Similar to what we stated last week, USOIL is once again retesting the $58.70 Pivotal High ( significant 61.8% Fib. retracement level from the September drift). The particular level is acting as an unbreakable ceiling for the asset, hence if the market does not move above it, then this Resistance level will strengthen even more.
On a technical basis, this would be a key move with upside potential on momentum indicators, however for now momentum indicators are holding a neutral stance in the near term. RSI is struggling to post further highs, currently at 56 in the daily timeframe, while it has been flattened intraday (i.e. consolidation alert). Furthermore, the MACD is inline with RSI while Stochastics lines are again turning lower in bearish configuration intraday.
Hence as the technical picture does not strongly support a potential upside break, a pullback could find immediate Support at $57.00-$57.15 (20-day SMA and 50 % Fib.) and in the medium term, below the channel, at the confluence of 38.2% Fib. and 50-day SMA, i.e. at $55.50.
Hence the big question now is whether the 2-day OPEC meeting could boost Oil breaking the $58.70 ceiling and opening the doors towards year’s highs.
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Andria Pichidi
Market Analyst
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