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Oil Slipping Downwards?

Only the fourth week of January and market is looking at a heightened level of volatility. One of such instrument is Oil. Oil prices are currently seen to fall on the back of increased U.S. rig count, increased supply level and China industrial slowdown, demand suppression. U.S. crude oil production rose to a record 11.9 million barrels per day (bpd) late last year which has been weighing on oil markets. According to Baker Hughes weekly report released on Friday, U.S. energy firms last week added an extra 10 rigs increasing total rigs to 862. From the demand side, the world second largest consumer of oil is experiencing its slowest pace of growth since the 1990 – earnings of Chinese industrial firms contracted for a second straight month in December last year on the back of sluggish factory activities.

Technically, oil (WTI) is trading below a resistance area at the $54.00-55.00 price region (highlighted in grey) [see H4 Chart]. We would envisage that the bloc, OPEC and the Kingdom of Saudi Arabia would try its best possible to stabilize price (basically what that means in our view is that they would look to push price higher as a significant lower oil price isn’t palatable to its members). In this light, there is a high expectation that price would be capped in a range between 55.00 and 50.00 or between 55.00 and 45.00 on a shorter term basis.

Fig 1: 4 Hour (H4) WTI Chart

 

US Light (WTI) – Future (Mar)

Sell order @ 5182 (51.82) (pending order)

Stop: 5238

Limit: 5100

We are currently in a high volatile environment so there are significant downside and upside risk on this instrument. In this case, the upside risk here is that there are OPEC+ in their last meeting last month set up necessary fundamentals to push oil price upwards. So it is imperative that traders always use a stop loss as price can spontaneously swing against our outlook.

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