Written by Nour Eldeen Al-Hammoury from Orbex
Since the beginning of the year, OPEC managed to increase the hopes for a possible freeze in its oil production and/or cutting the production. However, it’s November and there has been no deal or an official decision. Since January Crude Oil prices recovered by more than 50%. Brent recovered from this year’s lows at $27.10 all the way to $53.73 (+98.27% increase from this year’s low to its high). West Texas Crude also recovered from $26.05 to $51.93 (+99.35% increase). Yet, all of these gains were built on hopes of a possible deal throughout the year. In fact, there is no deal yet. What Now?
Who’s Responsible?
At the beginning of the year, everyone was talking about Iran being the obstacle against the decision, as Iran wanted to recover its market share after the global community left the sanctions on Iran. Iran refused to cut or to freeze its production until it regains its market share.
For some reason and after a while, Iran agreed to freeze when they reached their daily production target. Things were encouraging, and suddenly, Iraq requested not to join OPEC in freezing or to cut the production. Moreover, Russia decided to only freeze but not to join OPEC in cutting the production. Since then (October) when the prices of oil were at this year’s high, the market was cheering for a definite decision. However, there is no deal yet. Who’s responsible? Everyone!
Oil Reaction Turning Point
Even though Oil prices has been cheering on a possible deal since the beginning of the year. This has changed significantly in the past few days.
Despite the announcement of Iraq, Iran and Russia not to join such deal to cut the production, OPEC managed to keep the hopes higher, by saying “we are on the right track to reach a deal by November 30th” However and for the first time ever, Oil reacted negatively throughout the week, losing more than 6% since the beginning of this week. Why? Because it seems that the market is fed up from promises for more than 11 months with no deal, it also seems that traders got the sense that there is no deal since the beginning, but they were pushing hopes everywhere to keep the prices higher.
What Now?
In the meantime, with Crude Oil outlook has changed at least from a technical point of view, further declines could be seen ahead. Both Brent Crude and West Texas crude failed to stabilize above their major up trendline support for the year and now we are few hours away from the weekly close. A weekly close below those two trendlines should clear the way for further declines and would end the hopes for another bull run anytime soon, or at least during next week.
Where Can We Go?
Well, a dead deal means that the market should consider readjusting the prices again, meaning that the ~95% rally throughout the year might be whipped out in a matter of few weeks. This is only IF OPEC announced that there is no deal. But keeping the hopes again would only lead to a gradual decline and not a one-way bet to new year’s lows.
