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Oil pared earlier losses from the Asian trading hours on Monday after Saudi Arabia’s energy minister Khalid al-Falih said he was optimistic that major oil producers could reach an agreement to cut production by November, amid signs of U.S drillers coming back to the market as oil prices hold onto the highs.
Oil extended Friday’s collapse following a statement by Russia’s Energy Minister Alexander Novak. On Friday, Minister Novak had expressed his belief in a potential deal this November when OPEC and non-OPEC oil producers gather to discuss details over a new output ceiling, but stated that he was not expecting to reach an agreement with OPEC at the World Energy Conference, which is being held from October 9th to 13th (this week) in Istanbul.
Sources from OPEC on Sunday also supposed that the informal meeting on the sidelines of the conference in Turkey might not bring about any new decisions over the specific quota for each OPEC member, not to mention a new deal with non-OPEC oil exporters. Final details to conclude the preliminary production agreement reached in September will not be finalized until the group’s next official meeting in Vienna on November 30th.
Commenting on the potential deal, the Saudi Minister of Energy and Industry, Khalid Al-Falih stated that many other producers had also expressed their readiness to work with the OPEC to cut production, or freeze it at the current level. In the next couple of days in Istanbul, Al-Falih and other OPEC ministers will have bilateral meetings with their Russian counterpart.
In the wake of rising crude oil prices that surpassed the 50.00 threshold for the first time in three months, U.S drilling activity seems to be recovering. Oilfield services provider Baker Hughes reported late on Friday that the number of rigs drilling for oil in the US, rose by 3 to 428 last week. That was the 14th increase in the last 15 weeks.
Separately, in the weekly Commitment Of Traders report from the Commodity Futures Trading Commission, long positions held by money managers in the WTI contract, climbed to the highest level in more than two years at 353,162 futures and options during the week ended Oct. 4th. Meanwhile, bets on falling prices dropped for a second week, dropping by 30 percent. The resulting net-long position increased by 40 percent to the highest level since May 2015.
The OPEC Monthly Oil Market Report which provides an outlook on the crude oil market will be out on Wednesday. Crude oil inventories reported by the EIA also remain in focus this week, after five continuous weeks of declining inventories in the US. Inventory levels become a key consideration for traders, as we edge closer to the winter, given elevated levels of demand for crude oil and by products during the winter in most of Europe and North America.
Fig: WTI D1 Technical Chart
U.S crude price trimmed losses and resumed the uptrend towards the highest levels seen since early June(2016). Up moves are being supported by the two moving averages placed below the price action but room on the upside seems limited. As can be seen in the RSI indicator reading, the market has neared the overbought zone. Furthermore, the 0% level is within sight near the $52 mark, providing a stiff zone of overhead resistance to challenge the bullish momentum in the market. In conclusion, a possible near term target can be found near 51.58, where the market could stall/reverse.
Buy Digital Call Option from 50.55 to 51.55 valid until 20:00 GMT October 11, 2016