ANALYSIS OF CRUDE OIL (LCOc1) OPEC+: The dispute between the UAE and Saudi Arabia adds to the uncertainties. Tensions between the US and Iraq are expected to rise as the US bombs Iranian insurgents. As expected, a bearish engulfing candlestick pattern is forming. FUNDAMENTAL BACKDROP OF CRUDE OIL Following a solid start to the week, crude oil prices fell as the Organization of Petroleum Exporting Countries (OPEC+) failed to reach an agreement on output increases. As a result, member states may decide to take matters into their own hands and increase supply regardless of the OPEC+ agreement. If the existing limits are rejected, petroleum prices may depreciate further in the future. THE RIFT BETWEEN SAUDI ARABIA AND THE UNITED ARAB EMIRATES COULD LEAD TO DEREGULATION. The UAE and Saudi Arabia are at odds after Saudi Arabia refused to boost output in accordance with the present agreement, implying that output will remain unchanged (see current supply below). Forecasted data for Q3 2021, as shown below, suggest a substantial increase in output from 30.90mbpd to 33.31mbpd, which has yet to be implemented. The Petroleum Status Report from the US Energy Information Administration (EIA) will provide more information on US crude inventories later today (10:30 ET). OPEC Supply (Q1 2020 – Q4 2022): Refinitiv is the source of this information. Crude prices should rise logically if supply is restricted, but market participants are wary in this scenario since a potential breakdown between oil producers (and possibly OPEC) might be terrible. In the hopes of reaching an agreement, Russia has entered talks and is serving as a mediator between the two troubled nations. In our newly redesigned Commodities Module, learn more about Crude Oil Trading Strategies and Tips! IRAQ’S STRONG OUTPUT COULD BE DISRUPTED BY RISING TENSIONS WITH US FORCES. Iraq has been gradually boosting output in 2021, but if the conflict between the US and Iraqi militias becomes more frequent, we may see a disruption in supplies. BULLISH DOLLAR OUTLOOK AFTER FOMC MINUTES Yesterday, Fed officials did not provide any new information, although they did allude to inflation being temporary and the need for more economic recovery data before tapering. Many believe it will happen as soon as September of this year, while others predict limited bond purchases in early 2022. As a result, the Federal Reserve has shifted to the ‘hawkish’ camp, leaving the US dollar vulnerable to additional gains and supporting lower crude oil prices. TECHNICAL EXAMINATION WEEKLY CHART OF BRENT CRUDE (LCOc1) Warren Venketas, IG, created the chart. The weekly Brent crude chart above shows price action heading higher, while the Relative Strength Index (RSI) suggests rising momentum is weakening (red). Divergence, specifically bearish divergence, is what this is called. Bearish divergence indicates a likely price drop in the future, which is currently taking shape. The future of crude oil prices will be determined by fundamental factors, such as whether this is the start of a turnaround or a push toward $80.00 per barrel. DAILY CHART FOR BRENT CRUDE (LCOc1) by Warren Venketas, IGT On Tuesday’s daily candle closure, a bearish engulfing pattern was displayed, which has subsequently extended to the downward in classic fashion. This pattern usually comes at the top of an uptrend, and it’s backed up by the RSI’s overbought indication. A confirmation candle close below the psychological level of $75.00 per barrel yesterday confirmed the possibility of a negative extension. Bears were unable to keep prices below the 50-EMA today, thus it has remained a support zone. For the time being, the short-term directional bias remains bearish, bringing the $71.50 per barrel and following 76.4 percent Fibonacci support levels into focus. Discover Fibonacci’s fundamental building elements and how they might be used in financial markets! The less likely optimistic scenario will necessitate solid fundamental support as well as a key price break over the $75.00 per barrel resistance zone, while prices above $73.34 per barrel may not be enough to persuade bulls of a positive continuation. INDECISIVE CLIENT SENTIMENT IN IG Retail traders are modestly net short on Crude Oil, according to IGCS, with 51% of traders holding long positions (as of this writing). We normally adopt a contrarian approach to crowd sentiment at DailyFX, but because the daily change in overnight interest is 0%, the bias remains mixed, which is consistent with the present crude oil fundamental backdrop. —- Warren Venketas contributed this article to DailyFX.com. Warren Venketas may be reached at @WVenketas on Twitter./n
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