Originally published by AxiTrader
Oil traded under $44 a barrel in WTI terms on Friday. That was the lowest level since November 15 last year with the collapse driven by the twin concerns of slowing Chinese growth and doubts about the efficacy of the OPEC and non-OPEC nations production cuts.
But the fall to $43.74 was swiftly reversed with prices climbing to close the week at $46.45 - still down more than 5% on the week.
That collapse in prices had what's become the usual effect on OPEC by encouraging bullish comments from the cartel and talk of market rebalancing and a production cut extension.
Yesterday OPEC rolled at the big guns in defacto group leader Saudi oil Minister Khalid al-Falih who - speaking in Kuala Lumpur - said oil producers will do "whatever it takes" to rebalance the market.
He also said that "based on consultations that I've had with participating members, I am confident the agreement will be extended into the second half of the year and possibly beyond" adding "the producer coalition is determined to do whatever it takes to achieve our target of bringing stock levels back to the five-year average,"
The problem for OPEC is the void in production it's trying to create to rebalance the market is being filled by its competitors - US oil production. And that's making it difficult to drive the stockpiles down to a level OPEC things will see prices rise sustainably.
So the solution - according to OPEC it seems overnight was to float the idea that the production cuts will be extended for 9 months in 2018 and to reiterate that Russia is in discussions to join such a deal.
But the pullback from the initial rally after this news breaks suggests the market is a little tired of OPEC's jawboning. OPEC is suffering diminishing returns on its efforts to goose prices higher.
It needs US gasoline demand to increase, it needs inventories to fall. OPEC needs to prove its effectiveness at actually rebalancing, not just talking about it if it is to drive prices higher.
Until then all it has done is stop prices from falling further.
But there are tentative signs it may have at least been able to do that when we look at the charts.
Friday's price recovery from a spike low is just the sort of pessimistic crescendo we often see in markets when a bottom is put in place. The question of sustainability is the one that will interest traders.
And on that front Crude Oil - in WTI terms - failed at overhead resistance last night as you can see on the blue line in the chart below. That's a warning.
However, WTI is oversold based on the stochastic indicator, it is at the out limits of the Bollinger bands, and the MACD is suggesting a turn could be afoot.
For me a move back and through the previous support at $47.00/20 is needed to confirm this spike low. And there are signs that will come if WTI can hold these levels here in the mid $46 region for a few days.
Looking at the weekly charts it's clear that this trendline and the $47 region are important. It's also clear that the move under $4 satisfied the 38.2% retracment I always look for.
And even though the weekly environment gives a move benign - range style - picture of WTI prices over the past 6 months it does show some bearish signs. That just reinforces WTI needs to get back above $47 and hold there.
Here's the weekly chart:
