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WTI heads for the June 2017 lows on slowing demand, a supply glut and risk off markets (1+1=2)

  • Oil prices have made a fresh low for Tuesday's range between $47.18bbls and $49.96bbls so far in WTI.  
  • The black gold is heading towards a fifteen-month low, partly due to concerns of a supply glut.  
  • Russia is increasing their output to 11.42 million barrels per day this month.

Following yesterday's weakest settlement since October 9, 2017, WTI is carving out a familiar trajectory in the build-up to the FOMC decision tomorrow that will come of their two-day meeting that commenced today. Markets are on red alert concerning risk appetite whereby the US stock markets extended the worst start to a December since 1980 yesterday, when the DJIA tumbled by over 500 points.  

Monday’s losses came on the back of Genscape reporting that Cushing, Okla., crude inventory rose by 630,000 barrels last week while the Energy Information Administration, EIA, on Monday predicted a rise of 134,000 barrels a day in U.S. shale oil production for January to 8.166 million barrels a day - (The American Petroleum Institute's report on domestic petroleum inventory will come later today, a few hours from time of publishing).

After all, 1+1=2 

When adding in supply concerns and a lack of faith in the cartel's and global producer's motivations to cut supply, coupled with a deteriorating global growth outlook and demand, as well as a broad risk-off tone, it is little wonder that the price of oil is continuing in its southerly direction this week.  January, however, could provide some clarity as to whether OPEC and some nonmember allies will follow through on an accord to cut production by 1.2 million barrels a day - But, for the meantime, its all down to speculation.

As for futures, the front-month January contract for WTI dropped $2.83, or 5.7%, to $47.05 a barrel on the New York Mercantile Exchange, en route for lowest finish for a front-month contract since late August 2017.

WTI levels

Technically, the outlook leans with a bearish bias for the medium term with the price now below the 76.4% fibo retracements of the late June 2017 lows to 2018 highs range. RSI on the 4hr time frame is now on oversold territory, but there is still room to go until 20 which is where RSI had reached on two of three previous occasions in Nov trade when 30 was breached. Daily RSI still has some mileage to go as well which has not yet breached into oversold readings. The last time that it did, in nov trade, it reached as low as 14 before correcting. For a full retracement of the June 2017 uptrend, the price will need to go to $42.12bbls. First stop is the 61.8% fibo of the Feb 2016 to 2018 highs located at 45.30. On the upside, bulls need to get back above 51.30, as the 50% level of the same range. 

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