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Summary: The much-anticipated OPEC+ meeting concluded in a lackluster manner, leaving investors disappointed as the voluntary production cuts for the first quarter of 2024 fell below expectations, and details on quota execution remained unclear. This disappointment resulted in a sharp decline in oil prices.

Fundamentals

Recent reports suggesting a preliminary agreement within OPEC+ to cut daily crude oil production by over 1 million barrels fueled optimism among traders and investors, extending the recent momentum in the oil market before the OPEC+ meeting. Two OPEC+ insiders, as reported to Reuters, have sparked optimism among traders and investors, leading to an extension of the short-term oil price recovery.

The proposed significant production cut includes Saudi Arabia continuing its voluntary reduction of 1 million barrels per day, effective since July. The agreement also involves further contributions from other OPEC+ member countries, signaling collective efforts to stabilize oil prices amid global economic uncertainty.

However, during the long-awaited (and delayed) OPEC+ meeting on Thursday, the issue of production cuts in the joint statement failed to ignite bullish interest in crude oil. After the details of the meeting were disclosed, WTI crude oil dropped over 2.5%, closing below $76.00 per barrel. Prior to this, the oil price had undergone dramatic trading, erasing most of the gains for the week.

Despite Russia and Saudi Arabia confirming an extension of the production cut deadline until the end of the year, the voluntary nature of the cuts and disagreements among individual member countries on the scale of reduction prompted traders to hit the sell button. The market had hoped for a unified voice on the agreed production cuts, but investors were met with Saudi Arabia's unilateral voluntary reduction.

As of yesterday's close, crude oil prices for November fell for the second consecutive month. Technically, breaking below the 200-day SMA also demonstrated the challenges ahead for further upward movement in oil prices.

Meanwhile, the US Energy Information Administration (EIA) reported that US crude oil producers reached a historic high of 13.2 million barrels per day in September, a 1.7% increase, highlighting the challenges faced by OPEC.

Earlier this month, the International Energy Agency (IEA) stated that the oil market is expected to return to surplus amid ample supply from non-producing countries, including significant supplies from the US.

The joint statement from OPEC+ also mentioned Brazil's upcoming inclusion in the group next year. The Latin American producer plans to increase its daily production to 3.8 million barrels but will not participate in any production cuts.

Looking ahead, the direction of oil prices may be influenced by the Purchasing Managers' Index (PMI) data for the US manufacturing and service sectors. The current market expectation is that the contraction rate in these two industries will slow down in November.

Improvements in these sectors may indicate stronger demand for energy commodities, potentially benefiting oil. On the other hand, weak data could suggest a slowdown in future energy demand.

Technical Analysis

Within a short-term timeframe, WTI crude oil has formed higher lows and higher highs within an ascending channel pattern, and the current price is testing support levels. A bounce from the $75.50 region could potentially stimulate the price to rise towards nearby resistance.

The top of this channel is situated near the key psychological level of $80.00, but there is also upward resistance around the mid-channel at $78.00, or the dynamic turning point of the moving averages.

The 100-day SMA being below the 200-day SMA suggests that the path of least resistance is downward, and there is a higher likelihood of the channel support being breached rather than held. If this occurs, a reversal in the upward trend of crude oil could be indicated. The price has already fallen below both of these technical indicators, indicating early signs of selling pressure.

However, the stochastic oscillator indicates that the bears are in oversold conditions or exhausted. Therefore, a rise could imply a potential return of bullish sentiment. Similarly, the RSI is also on the rise, indicating a resurgence in upward pressure. The oscillating indicators have more room for an upward move before reflecting overbought conditions, but the upside potential for price increases is limited.

In terms of trading strategy, a buy-on-dips approach is recommended.

Trading Recommendations

Trading Direction: Short

Entry Price: 76.00

Target Price: 78.88

Stop Loss: 72.30

Valid Until: 2023-12-15 23:55:00

Support: 75.11, 73.80, 73.29

Resistance: 77.18, 78.65, 79.61