Oil Price Talking Points

The price of oil extends the rebound from earlier this week following a sharp decline in US crude inventories, but the string of failed attempts to test the monthly-high ($57.99) may bring the downside targets back on the radar as oil continues to track the downward trend from earlier this year.

Crude Oil Prices Stuck in Monthly Range Despite Waning US Inventories

Oil climbs to a fresh weekly-high ($56.75) as US crude inventories contract for the second straight week, with stockpiles narrowing 10027K in the week ending August 23.

A deeper look at the report showed a 2090K decline in gasoline inventories, with stockpiles of distillate fuel also falling 2063K during the same period.

The data suggests energy consumption will remain resilient despite the trade dispute between the US and China, and it remains to be seen if the Organization of the Petroleum Exporting Countries (OPEC) will curb production beyond 2019 amid the weakening outlook for global growth.

Keep in mind, US field production of crude oil has hit a fresh record-high of 12,500K in the week ending August 23, and the fresh metrics may become a growing concern for OPEC and its allies as the most recent Monthly Oil Market Report (MOMR)warns of lower consumption “due to weaker-than-expected oil demand data from OECD Americas, Other Asia and the Middle East.”

In turn, OPEC and its allies may take additional step to keep crude prices afloat as the group looks to hold the next Joint Ministerial Monitoring Committee (JMMC) meeting on September 12, but a lack of response may drag on oil prices as the US and China, the two largest consumers of oil, appear to be in no rush to reach a trade deal.

With that said, oil prices remain at risk of facing a bear market especially as a ‘death-cross’ formation takes shape in July.

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Crude Oil Daily Chart

Source: Trading View

Keep in mind, the broader outlook for crude oil remains tilted to the downside both price and the Relative Strength Index (RSI) track the bearish trends from earlier this year.

At the same time, a ‘death cross’ formation has taken shape in July as the 50-Day SMA ($56.48) crosses below the 200-Day SMA ($56.09), with both moving averages tracking a negative slope as it occurred.

The recent crossover in the 50 and 200-Day SMA may look like a ‘golden cross,’ but the convergence may prove to be a false signal amid the difference in slope, with the development more indicative of range bound conditions.

In turn, the monthly range remains on the radar as the rebound from the August-low ($50.52) fails to produce a close above the $57.40 (61.8% retracement) pivot, with the lack of momentum to test the August-high ($57.99) bringing the downside targets back on the radar.

Lack of momentum to hold above the Fibonacci overlap around $54.90 (61.8% expansion) to $55.60 (61.8% retracement) raises the risk for a move back towards the $51.40 (50% retracement) to $51.80 (50% expansion) region , with the next area of interest coming in around $48.80 (38.2% expansion) to $49.80 (78.6% retracement).

For more in-depth analysis, check out the 3Q 2019 Forecast for Oil

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.