Crude Oil Bearish Sentiment Continues Thank to OPEC Failing to Agree

The last two weeks of the third quarter (Q3) has seen traders throughout the financial markets, including Forex, focusing a lot of attention on OPEC and Russia as the cartel met in Algiers. The Federal Reserve Board monetary policy announcement did little for the almighty Buck and now, even one rate hike this year is a fading hope. Now, news is surfacing that there is more disappointment coming out of Algiers as Iran is refusing to freeze output. Saudi Arabia is not interesting in freezing production without Iran complying.

There is a lot of focus on OPEC now and will be again when they officially meet in November, when more rumors of a production freeze will likely surface again. On Tuesday, the IEA released that oversupply will exceed demand until late 2017. Forex and commodity traders, of oil related instruments, should take this warning and put it in their back pocket. There will likely be a failed accord with OPEC alongside Department of Energy (DOE) data today that will put downside pressure on not only crude oil but sentiment linked currencies, like the USD/CAD.

We are seeing even more bearish developments from institutional positioning that the aggressive bearish outlook has not seen since September 2015. Bearish puts, purchased when traders want to sell higher than what they believe the market will be at has increased to levels not seen in two years. This bearish exposure can see the oil market test key levels on the charts.

The above US WTI crude oil chart shows a number of competing technical views. The fundamental pressure argues for a push lower. Only a reversal of themes, like a weak US Dollar, oversupply failed accord with OPEC along with a price (with daily close) back above $50 per barrel could swing the charts towards a bullish model. We saw this during the second quarter of this year. There is a potential bullish head and shoulders which confirms with a daily close above $50.
The chart shows us that crude is sitting right smack dab in the middle of the August price range. This pattern has engulfed September’s price action. The first downside barrier in focus, right now, is $49.10. A daily close below this level challenges the next downside barrier that lines up at $39.21/20 per barrel.
In other words, current price support is now at $42.75 per barrel. Should crude oil fail to hold above this level then focus will shift towards the supports lining up at $40.85 to 39.21/20. This breakdown in price will keep oil sufficiently bearish for quite some time as fundamental and technical aspects would support this view.