Crude Oil Markets Hit Brick Wall on Monday

Alan Penny

9 December 2019

3 min read

Oil trading

  • OPEC cuts production
  • Chinese exports slip again
  • Demand a serious concern
  • Top of consolidation

The crude oil markets ran into a brick wall during the early hours on Monday, as the market had gotten a bit stretched. Concerns about demand levels follow as the decision to make production cuts were made. If the demand is low, a production cut won’t have much to do with where the price goes, as OPEC is somewhat limited in that scenario.

OPEC crude oil production cuts

OPEC and Russia decided to cut production by 500,000 barrels on Friday, on top of the already 1.2 million barrels a day cut that had been in place. While this initially was bullish for crude oil, the reality is that it is a different environment than it used to be, as the Americans are producing more crude oil than ever.

While this initially was bullish for crude oil, the reality is that it is a different environment than it used to be

Although there is a little bit of a bullish slant after this move, the reality is that OPEC is not as strong as it once was. The initial reaction was a shot higher on Friday, but the market could not break above the crucial $60 level, as it continues to go back and forth in the same range.

Chinese exports

Chinese Exports slipped over the weekend for the fourth month in a row, and this shows that the US/China trade war is having an effect on China itself, which has a significant effect on global growth. Demand will likely continue to drift a little bit lower, and that is going to tie the hands of OPEC. American shale producers would have liked to have seen higher prices as well but that’s just not going to be the reality here. Crude oil is certainly stuck in a range and if OPEC cuts can’t break the market out, then obviously we are paying more attention to the economy itself rather than fear of shortages.

Technical analysis

The West Texas Intermediate Crude Oil market pulled back from the crucial $60 level which is the top of the recent consolidation, between $50 on the bottom and that $60 level on the top. Ultimately, the fact that markets have pulled back suggests that they are not ready to break out and move out of this range anytime soon. This should put a little bit of bearish pressure on the crude oil market. As seen over the last couple of months it’s been more or less chopping back and forth. Not necessarily a scenario where markets are going to make some type of impulsive move.

Range-bound traders are likely to find the market to be more attractive, while trend traders will continue to find the market difficult to deal with. Ultimately, there is no catalyst in the short term that seems likely to send markets in one direction or the other for very long.

WTI Crude Oil


Written By
Alan Penny

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