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Talking Points:

• Crude Oil Technical Strategy: Fibonacci Resistance Zone Expected to Resist Price Advance
• EIA Stockpiles continue to build increasing concern if OPEC deal is not reached
• Russian Energy Minister, Alexander Novak sees high chance of OPEC production cut accord

Wednesday’s price action in Crude Oil was dictated by ~a thirteen-minute window. At 10:30 am EST, The EIA inventory report showed that U.S. aggregate crude inventories rose 5.275M barrels that was far beyond the expected 1.5M. The rise in U.S. inventories was the third straight rise in U.S. inventories. Cushing, OK also experience a strong build in inventory.

On this news Crude Oil dropped toward $45/bbl until news came out about optimism from Russia of an OPEC accord. A strong turnaround at around 10:40 am EST on news that Russia’s Novak sees a high chance of an OPEC accord at the formal talks in Vienna at the end of November.

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The optimism from Novak was enough to allow Oil to turnaround as it helped signal Russia’s willingness to go along with a production cut to help Saudi pass the deal and stabilize the market and price volatility.

We’ve long argued that the build in inventory in the U.S. could continue to act as motivation for OPEC to reach a deal to cut production. Currently, the market continues to get flooded with supply, and the current price levels with the supply glut would make it increasingly difficult for many sovereign states that depend on the Oil price to balance their budget.

Informal talks with OPEC members will also discuss what is needed to reach a deal in Doha on Nov. 17-18 that Russian Energy Minister Novak said he might also attend as Saudi works to find a solution with some member countries seeking exemptions.

D1Crude Oil Price Chart: USOIL Continues To Find Resistance At Fibonacci Retracement Zone

Chart Created by Tyler Yell, CMT Courtesy of TradingView

The Trendline drawn off the first higher low in early April should continue to be watched as an indicator for the path of least resistance in Oil that appears lower. Given the near-20% drop from the $51.94/bbl high and the sharp post-election pull-back, it’s hard to get excited about Crude’s prospects despite this week’s rally. Much of the spikes happen against a background that is not supportive of higher Oil prices like a stronger US Dollar and multiple weeks of higher U.S. inventory stocks.

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While the price of Oil is holding above the rising Trendline, much of the focus is on whether or not a worth-while accord can come from OPEC in Vienna later this month. The resistance as rumors continue to fly out as we head into the Nov. 17-18 meeting are the 38.2-61.8% Fibonacci retracement zone.

The zone occupies $45.90-$48.19/bbl. Within that price resistance zone is also the top of Andrew’s Pitchfork that should still be respected until price definitively uses the top channel as support for a move higher. The support zone worth watching is $43/42 per barrel. A break below this important zone that houses the post-election low and Trendline could indicate the risk of a double-top is upon us.

For what it’s worth, while we’ve discussed the strength of the USD, there is very little positive or negative correlation coefficients to Oil and other major markets. The lack of correlation helps show the market is ignoring Intermarket signals and focusing on the OPEC accord and whether or not it succeeds. If the OPEC accord does succeed, we’d look for a break and close above $48.19 to indicate a breakout and possible exit from the long-term bearish channel. However, a breakdown below the $43/42 zone would show traders with long Oil exposure could be in for a good deal of pain.

Key Levels Over the Next 48-hrs of Trading as of Wednesday, November 16, 2016

T.Y.

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