Oil prices sold off over 3% on both oversupply concerns and expectations for Iran to return to pre-sanction production levels of 4 million barrels a day. Iran Oil Minister Zanganeh reiterated his support for the potential output freeze once Iran was pumping at the noted levels. Russian Oil Minister Novak spoke alonsdie the Iranian minister and stated that an output freeze meeting is not likely to happen until next month.
Kuwait’s Oil Minister also stated that it is difficult to imagine an oil freeze for some countries but not others. Last week Kuwait stated they would consider a freeze only if all producers, including Iran came on board. The freeze plan appears very difficult for everything to line up in favor for it and that could drive oil lower again on oversupply concerns.
Price action on the US oil daily chart shows that the bearish butterfly pattern identified last week remains valid and could support a slide back towards the $32 region. Point D was targeted slightly ahead of the 141.4% Fibonacci expansion level of the X to A leg and the 200.0% Fibonacci expansion level of the B to C leg. If the theme over the next couple of days is a stronger US dollar, we could eventually see a test of the psychological $30 handle.
If we see bullish momentum return, key resistance remains the $38.50-$40.00 zone.
The trade: Sell oil at $37.50, with a stop loss at $38.50 and take profit at $34.50. The risk/reward ratio is 1:3