Crude oil may be stabilizing before OPEC

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Disclosure: This post is intended for educational purposes and should not be considered a trade recommendation.

Energy may be stabilizing, even as OPEC prepares to increase supply.

Crude oil futures (@CL) have remained in a range between about $64 and $66 all month, following a sharp pullback in the second half of May. The current price area could have meaning for chart watchers because it’s near peaks from January and March. Remember, it can viewed as bullish when old resistance becomes support. It’s also at the 100-day moving average, a longer-term trend indicator.

Crude oil futures (@CL), with 100-day moving average and potential support zone.

A combination of strong global demand and limited production from the likes of Saudi Arabia and Russia have lifted petroleum over the last year. Moscow’s open statements in favor of pumping more oil caused jitters recently, but the market may have priced them in. Will longer-term buyers return once the uncertainty of OPEC’s Friday meeting in Vienna has passed?

It could be a case of “sell the rumor and buy the news.” Simply put, traders often unload an asset or refuse to buy it when a negative event is expected. But once it passes and the uncertainty is gone, they’re willing to buy. The mirror image happens with stocks rallying into good news: “Buy the rumor, sell the news.”

There are still bullish things happening in the space: Weekly data from the Energy Department shows crude-oil inventories falling more than expected. Iran faces sanctions and Venezuela’s on the ropes. Bloomberg also says hedge funds are jumping on the bullish momentum.1 Goldman Sachs expects a move toward $80.2

In conclusion, oil’s at a key level with attention likely to increase in coming sessions.

 


1. CNBC: Goldman Sachs still sees oil rallying over $80 despite market concerns over key OPEC meeting. 6/18/18.

2. Bloomberg: Hedge Funds Flip Bets on Oil Price as OPEC Meeting Approaches. 6/15/18.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.