On Friday, OPEC members gathered in Vienna and had their bi-annual meeting. Comments were first given to reporters and then eventually they gave an official statement. Initially, an OPEC delegate announced that a cap was set at 31.5 million barrels a day, much higher than the expected 30 million eyed. With Indonesia joining OPEC, initial reports believed that they were expected to provide 1 to 1.5 million barrels a day. Shortly after, a different delegate then said the 31.5 million b/d quota did not include Indonesia. A few hours later, OPEC’s official statement, made no reference of a specific target, but that it’s celingless. The end result saw oil selloff as OPEC is committed to keeping output high.
Price action on the West Texas Intermedia (US OIL) daily chart shows that the recent break of the $40 support level may see further support from the August 24th $37.75 low. The bearish trend has been firmly in place since the November 6th daily candle close below all three key (200-, 100- and 50-day ) SMAs. If bearish momentum breaks below the $37.50 level, we could see a major drop towards the $35 zone. Consecutive daily closes below that level could open the door towards the $29.61 level. It is around that area that a bullish butterfly pattern could form. Point D is targeted with the 161.8% Fibonacci expansion level of both the X to A leg and the B to C move. If valid, we could see price find tentative support and a slight rebound that may target the $35 area.
If price is able to quickly recapture the $40 handle by the middle of this week, we could see a bullish advance target the $42.50 resistance level.
The trade: Sell oil at $39.75, with a stop loss at $41.75 and take profit at $33.75. The risk/reward ratio is 1:3