UK Oil

09:29, 05 December

Bounces Off Support around 58 as OPEC Meeting Looms

In the last couple of weeks, oil has been able to find some much needed support from around $58 and enjoy a reprieve from the immense selling pressure which has dominated it for the last couple of months. Since the beginning of October, oil has fallen sharply from its multi-year high above $86 down to its lowest levels in 12 months below $58 in the last few days, however it has been able to reach a two week high in the 24 hours. A few weeks ago it hit the key level of $71 where it did receive some temporary support from, and likewise at $75 which propped up oil for a week. However both of those key levels gave way to immense selling pressure pushing it lower. Due to the significance of the $71 level, this is now likely to offer resistance should oil continue its rally higher.

Oil enjoyed a very healthy August and September moving from that key $71 level to its highs before falling back to the same level. 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.

The Organization of the Petroleum Exporting Countries (OPEC) led by Saudi Arabia, has been pushing for the producer cartel and its allies to cut production by 1 million to 1.4 million barrels per day (bpd).  The OPEC advisory committee recommended a cut of 1.3 million bpd last week, but since then the group got unexpected assistance from Canada’s 325,000 bpd reduction.  Qatar, which has been an OPEC member since 1961, announced that it will leave the group from January 2019 to focus on its liquefied natural gas production. Qatar’s departure from OPEC is not seen as significant as its production only comprises 2% of the total. Meanwhile Russia and Saudi Arabia have agreed to extend their cooperation to balance the oil market into 2019, but left the details of any supply cuts to be resolved in the coming days as OPEC and its allies prepare for their meetings in Vienna.  The consensus is that the meeting in Vienna will deliver a deal to lower output that goes some way to arresting a further drop in prices. Last month the cartel held its production steady as record oil output from Saudi Arabia helped offset losses due to U.S. sanctions on Iran.