Ahead of this weekend’s OPEC committee meeting and with prices poised for another leg higher, it's a good time to examine the oil market as it now stands.
Back in December we reported on brent’s burst into the $52.5-$54.3 resistance zone and soon after prices broke and importantly held above $54.3, representing a clear change in market structure. As we indicated, this paved the way for a subsequent rally and the resistance zone to turn to support.
However, 2017 has started with less of a bang. Dollar strength, rising shale production and skepticism regarding OPEC members following through with production cuts has seen oil prices retreat.
Following a sharp selloff last week, we saw prices form a new swing-low within the $52.5-$54.3 support zone. Confirmation of the swing-low and prices rallying out of this price zone further reaffirms the integrity of this support level and led us at Faraday Research to take note.
With Mohammed Barkindo, OPEC’s Secretary General, saying on Wednesday that the oil market remains far from its equilibrium level and OPEC’s own analysts forecasting the market won’t balance until well into 2017 without deeper cuts, the oil cartel is unlikely to rest on its laurels.
Yes, Saudi Arabia has questioned the need to extend the agreed production cuts beyond six months. However, Sunday’s OPEC meeting to discuss production-guidance compliance could offer a clear catalyst for a new burst higher.
Any move to reinforce the recent OPEC deal and increase ‘cut compliance’ would undoubtedly be a catalyst for a bullish burst. As we know, momentum bursts from key support levels are typically a clear indication that an uptrend is due.
That said, all eyes are on brent.