Originally published by AxiTrader
It's been a wild ride recently for crude oil as traders who worry about the efficacy of OPEC's oil cuts on inventory levels, battle with those focussed on the real draw downs that have started to occur in US oil stocks over the past month or so.
That's seen the average true range for price movements climb almost 50% over the past six weeks and as the bulls and the bears battle over crude's outlook.
But oil was higher again overnight as traders focus on next week's OPEC meeting and expectations that the production cut deal will be extended by a further 9 months. That sees Brent sitting at around $52.50 this morning - its highest level since late April.
But it's also seen Brent crude prices testing trendline resistance for the fourth day in a row.
That this current trendline Brent can't get through was previously the support line of the rally from the low last October is important. Previous support often becomes resistance as traders look for signposts on where prices might go next. so a break
As the chart shows Brent has been able to climb mildly higher over the past week along the slope of the trendline. And when I draw Fibonacci levels across the price action for the $10 fall from $56.60 to $46.60 it's clear that $52.80 is the 61.8% retracement level of that move.
That means this next 30 cents of overhead resistance for brent is key.
My system is small long at the moment (25% of original position) and the stochastic indicator is in the sell overbought zone.
So it might be too much to expect this overhead resistance to break right now. But there is every chance that having used its jawboning activity to put a floor under prices - Saudi and Russian oil ministers announcing a 9-month extension recently - OPEC tries to pull a rabbit out of the hat next week.
Could we see a deeper than expected cut to go with the extension? It's possible. And that would certainly kick prices to the next level. It's what I'd do if I was OPEC and serious about getting over this hurdle and nexus between US production and prices.
Because the reality is that whether it is the Baker Hughes rig count, inventories, or US production there is a real sense that all OPEC, Russia and other nations are doing is making room for US to fill the void.
Indeed Reuters reported this morning that "Oil tankers carrying around 10 million barrels of U.S. crude are en route to Asia, according to shipping data and trade sources, as US producers take advantage of favorable prices to ship to the region while OPEC ponders further supply cuts next week".
The battle rages.
Have a great day's trading.
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