WWM - Analytics

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    Today’s Trading Edge: Oil prices sink on OPEC comments on output freeze

    WWM_US_OIL_FEB_23_2016.jpg

    Oil prices sold off earlier in NY following Iran Oil Minister Zanganeh’s comments that the proposed output freeze plan among Saudi Arabia and Russia was “ridiculous”. Oil continued to drop following Saudi Oil Minister al-Naimi’s speech at the CERA conference. He highlighted that cutting production will not happen and that major producers may freeze production so the market may rebalance itself. He reiterated that Saudi Arabia can still be profitable if oil is at $20 a barrel, even though he would prefer the price to be higher.

    Price action on the US oil daily chart shows that the recent slide has taken price back below the 50-day SMA. Price is tentatively consolidating just ahead of the $31.00 handle. If bearish pressure remains strong, we could see price fall back below the $30 level and possibly target the $27.80-$29.20 zone. The February 11th to February 18th rally was heavily supported by the output freeze comments and we could see most of these gains given back if the markets become skeptical of a coordinated freeze between non-OPEC and OPEC members.

    While the global oil glut likely remains a bearish driver, year-end liquidity may support prices to stabilize around the $22.50-$25.00 area.

    If we see bullish momentum return, key resistance may come from the $34.21-$36.00 zone.

    The trade: Sell oil at $31.75, with a stop loss at $32.50 and take profit at $30.25. The risk/reward ratio is 1:2


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