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Crude Oil Extends Gains, Will It Continue?

27 Sep 2017 02:08 PM

After few months of declines, nearing its lowest level since a year, Crude Oil prices finally recovered their year’s losses, posting the longest weekly gaining stake for this year.

Yet, the question remains here, Will the current rally continue? Is it sustainable? And why Crude is gaining despite the fact that OPEC did not extend the current deal yet?

Why Oil Is Rising?

One of the main reasons of the current rally is the latest remarks by OPEC and Non-OPEC members, which increased the markets hopes for a possible deal by the end of this year.

Many members showed their support to any possible extensions for another three months. For the time being, the current deal should expire in March of next year.

The ongoing negotiations suggests another three months extension, which means that the deal might expire by June of next year.

Therefore, investors are pricing in such deal in advance, just like what happened back in 2016, when Crude Oil managed to rise from its bottom all the way to December of last year’s high, on hopes that OPEC and Non-OPEC will reach a deal to cut the output, despite the fact that the decision has been announced in December of last year, while the rally of Oil began in January of 2016 and continued until they announced the decision by the end of 2016.

OPEC Production

For the past three months, Crude Oil prices were declining as OPEC Production kept on rising once again for three months in a row, rising from 32.0M Barrels in May all the way to 33.0M Barrels in July of this year.

There were also many questions to ask here, as OPEC mentioned many times that the commitment ratio is more than 100%, which was revised lower to 80% back in July.

The latest data showed a slight decline to 32.8M barrels in August down from 33.0 in July, while OPEC revised the commitment ratio to above 100% once again.

Estimates are also lower for September’s production, which keeps the optimism higher for further declines in production. In return, this could keep the bullish outlook for Oil over the coming weeks.

Levels To Watch in Brent Crude

Looking at the weekly chart, traders need to keep an eye on this week’s close, as it will be the key for the upcoming weeks.

For the time being, Brent is trading week above 96.90’s resistance area, yet, a weekly close is still needed to confirm the breakout.

If so, the first immediate resistance stands at $60, which represents its psychological resistance followed by 62.35.

Otherwise, another leg lower could be seen once again back to 56.90’s.

Levels To Watch in WTI Crude

WTI has a different story as it still far away from this year’s highs. Yet, there is an inverted head and shoulders formation on the weekly chart, which should be watched very carefully over the coming days, especially that WTI has broken the neckline and the weekly resistance area at the same time.

In the meantime, traders should keep an eye on the weekly close, as a weekly close above the $51, this would clear the way for further gains ahead, possibly toward $53 later next week, with a possibility to test $54 over the next few weeks.

Otherwise, another leg lower could be seen back to $51 and $50.

Edited by:

Nour Eldeen Al-Hammoury

Market Analyst