UK Oil

09:10, 26 October

Bounces Off Support at $75 as OPEC Signals Output Cuts

In the last few weeks, oil has fallen sharply from its multi-year high above $86 down to the key level of $75 where it has enjoyed solid support in the last couple of days. Oil enjoyed a very healthy last couple of months moving from the key $71 level to its highs before easing back to its current trading levels. Whilst possibly not as significant as the $70 level, the $75 level has played a role in oil’s price in recent times and is likely to continue to support oil as it attempts to regain some lost ground. It may also receive some resistance from the $80 level as only last month oil was struggling with the resistance around the key $80 level despite strong surges higher in the few weeks leading up to it.

 

Just prior to this pronounced move up to its recent highs, oil was content to remain within its trading range between $71 and $75. Through May and June oil had established a trading range between the two key levels of $75 and $80, with the former offering reasonable support during that time. It is no surprise that the $75 level is now providing some resistance to higher prices. During this time oil reached a three year high in May above $80.

It is hard to argue against the strength of oil over the last ten months or so as it has moved from below $45 to its current trading range. After drifting lower to start last year, the second half of 2017 saw oil move strongly to move through previous resistance at $57 although it did stall around that level for a few weeks before surging higher. After reaching the three year high around $71, oil fell strongly to below $62 in under three weeks however it did well since to consolidate a little and hold above $65.

There are currently a lot of moving parts driving oil.Over concerns about rising oil inventories and economic uncertainty the Organization of the Petroleum Exporting Countries (OPEC) signalled it could cut output in 2019.U.S. President Donald Trump has repeatedly demanded that OPEC keep prices low, so if OPEC follows through with this plan, it will no doubt inflame the U.S. President and change the outlook for the oil market.Saudi Arabia is the largest oil exporter in the world and has told the Trump administration it could step up production after sanctions against Iran take effect on 4th November.Saudi Arabian OPEC governor Adeeb Al-Aama told Reuters on Thursday, "The market in the fourth quarter could be shifting towards an oversupply situation as evidenced by rising inventories over the past few weeks. We think that demand will start dropping off as we approach year-end in accordance with regular seasonal patterns.We have the flexibility to adjust our production to mirror it.”A committee of producers including Russia and Saudi Arabia have been boosting production since May said the rise in oil inventories in recent weeks saddled with fears about an economic slowdown “may require changing course.”