Oil Price Tracks Upward Trend as US Crude Output Holds Steady

Oil Price Talking Points

The price of oil snaps the series of lower highs and lows carried over from the previous week as US crude output sits at its lowest level since 2018, and energy prices may continue to retrace the decline resulting from the COVID-19 pandemic as crudepreserves the upward trend established in November.

Oil Price Tracks Upward Trend as US Crude Output Holds Steady

The price of oil bounces back from a fresh weekly low ($43.92) even though fresh data prints coming out of the US indicate limited demand for crude, with stockpiles narrowing 0.679M in the week ending November 27 versus forecasts for a 2.358M decline.

Nevertheless, the latest figures from the Energy Information Energy (EIA) showed field production of crude holding steady at 11,000K for the second consecutive week, and signs of limited US supply may keep oil prices afloat as the President of the Organization of the Petroleum Exporting Countries (OPEC) Conference, Abdelmadjid Attar, emphasizes “the crucial need for stable and uninterrupted energy supplies to support the economic recovery and achieve a secure, sustainable and inclusive energy future” while providing the opening remarks for the group’s last meeting for 2020.

Despite the delay in the 180th meeting of the OPEC Conference, the group may continue to regulate crude production in 2021 as Secretary General Mohammad Barkindo warns that “the oil market today is overshadowed by the resurgence of COVID-19 and a slower pace of economic recovery than we had envisioned in the second half of the year, and the price of crude may continue to retrace the decline resulting from the COVID-19 pandemic as it breaks out of the range-bound price action carried over from the third quarter to extend the upward trend established in November.

At the same time, the Relative Strength Index (RSI) highlights a similar dynamic as the oscillator breaks out of the downward trend carried over from June, and the indicator may show the bullish momentum gathering pace if the oscillator pushes into overbought territory for the first time since 2019.

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Oil Price Daily Chart

Image of oil price daily chart

Source: Trading View

  • Crude breaks out of the range bound price action carried over from the third quarter following the failed attempt to close below the Fibonacci overlap around $34.80 (61.8% expansion) to $35.90 (50% retracement), and the price of oil may continue to retrace the decline resulting from the COVID-19 pandemic as the break above the August high ($43.78) brings the March high ($48.66) on the radar
  • The Relative Strength Index (RSI) shows a similar dynamic as the oscillator breaks out of the downward trend from June and approaches overbought territory, with a move above 70 likely to be accompanied by higher oil prices like the behavior last seen in 2019.
  • The move back above the $44.60 (61.8% expansion) to $45.10 (61.8% expansion) region has kept the upward trend from November intact, with the $49.20 (50% expansion) area in focus as it largely incorporates the March high ($48.66).
  • Next region of interest coming in around $52.90 (78.6% retracement) to $53.30 (38.2% expansion) followed by the February high ($53.66).

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— Written by David Song, Currency Strategist

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