Crude Oil Update – OPEC May Be Considering Extending Output Cuts

Crude oil prices are receiving support early Tuesday on speculation that the OPEC-led production cuts may be extended beyond the June deadline. OPEC sources are indicating that several of the cartel’s members may be on-board for an extension of the program that would continue to reduce output in an effort to trim the excessive supply that remains stubbornly large.

The sticking point at this time is whether the non-OPEC members will agree to the extension. This is a major roadblock because a few of the non-members have not even complied fully with the original agreement.

The weaker U.S. Dollar is also providing support for the dollar-denominated crude oil market on speculation of increased foreign demand.

Finally, some traders are saying that Tuesday’s American Petroleum Institute’s stockpiles report is expected to show a rise back towards record highs after last week’s surprise draw.

Technical Analysis

The main trend is down according to the daily swing chart, but the market is showing signs of being in the early stage of a bottoming formation.

A trade through $47.71 will signal a resumption of the downtrend. A move through $50.14 will indicate a shift in momentum to the upside. On the downside, $48.46 is a new minor bottom.

The short-term range is $47.71 to $50.14. Its 50% level or pivot at $48.93 will be the key to today’s price action. Holding above this level will be an early indication that new speculative buying is coming in to support the market and that weak shorts are starting to cover their positions.

On the upside, the major level to watch is the Fibonacci price at $50.26. This is the trigger point for a potential rally into a pair of 50% levels at $51.52 to $51.64.

Forecast

Based on the current price at $49.27 and the earlier price action, the direction of the crude oil market today will be determined by trader reaction to the support cluster at $48.96 to $48.93.

A sustained move over this support cluster could create enough upside momentum to trigger a rally into the resistance cluster at $50.21, $50.26 and $50.32. Look for an acceleration to the upside if buyers take out $50.32 with conviction.

If $48.93 fails as support then look for further selling into $48.46 and $48.34. The latter is the last potential support angle before the $47.71 main bottom.

At this time, all we can say is that the longer the market spends building a support base, the bigger the potential rally.