Dec 19 2018

Fall in oil price… Is it short lived?

Brent oil has fallen by about 35% to 56.78 (this year’s low) since it tested its 4 year high of 86.71 on Oct 3. Oil was moving sideways for about a fortnight before the fear of increasing oil inventories and a concern over global slowdown made it fall today. The oil oversupply fears are wearing it down further along with lackadaisical demand.

It all started with Trump re-imposing sanctions against Iran on future oil production and further restricting other nations from importing oil from Iran. With Saudi Arabia’s push for oil production cuts inspite of Trump, at the OPEC+ meeting last week, the traders were at the edge of the seat to see if oil could gain back its lost strength. But with oil falling, Saudi’s crown prince – Mohammed bin Salman’s (MbS) bet seems to have paid off.

China’s growing demand for oil should keep the check on the price though. Most watched out global event is tonight’s FOMC meet from US, which should pave way for greenback as a safe haven.

Having risen from the previous low of 44.34 on Jun 21, 2017, it took 469 days to reach the peak of the year, whereas only 77 days to fall to today’s low. The rapid fall calls for a rebound before it heads back to lower levels. In the weekly chart, the momentum technical indicator, RSI is below 30 indicating that oil has entered the oversold territory and thus a pull back for brent oil could happen before it can retrace its path for further fall if any.

The 76.4% Fibonacci retracement level of 54.30 could be attempted before it heads back towards 60.45, the next 61.8% Fibonacci level.

#FOMC #BrentOil #OPEC

(All oil figures are in $/barrel)