Oil prices collapsed in the early U.S session, paring all of their gains from earlier in the day. After some profit taking, the bears came in as the fears over a global glut once again clouded sentiment within the crude market after the International Energy Agency (IEA) on Tuesday warned that it may take longer for the oil market to re-balance.
During Asian hours on Wednesday, crude futures rebounded after falling by as much as 3 percent in the previous session, as data from an industry group showed a smaller-than-expected build in U.S. crude stocks. The American Petroleum Institute (API) reported a build of 1.4 million barrels in US crude oil inventories, for the week ended Sept. 9. This was much smaller than the 3.8 million-barrel rise expected by analysts. The U.S. government will issue official inventory data on Wednesday, which is expected to show an increase of 4 million barrels last week – the biggest increase since April.
In its latest market update published yesterday, the IEA downgraded its oil demand forecast by 100,000 barrels a day for this year and 200,000 barrels in 2017, citing the economic fatigue in China, India, Europe and the U.S, amidst growing inventories and supplies. The market will be oversupplied at least through the first half of 2017, the report said.
Prior to the IEA’s report, OPEC also revised upwards its projections for supplies from non-OPEC producers in 2017. The cartel forecast that output from outside the group would only contract by 610,000 barrels a day — following an upward revision of 180,000 barrels a day from August, to average 56.32 million barrels a day. OPEC said oil markets would remain heavily oversupplied next year if the group maintains its currently elevated levels of production.
Adding to the downward pressure was the comment from Libya’s National Oil Corporation that it would immediately start working to resume crude exports from ports seized in recent days by forces loyal to eastern commander Khalifa Haftar. Consequently, Libyan production could be raised to 600,000 barrels per day from about 290,000 bpd within a month, further adding to the global crude oversupply.
Fig: BRENT D1 Technical Chart
Brent crude has broken through the 23.6% retracement level at 46.72 and at the same time broken through below the 50-day moving average from above. The prices are creating lower highs and higher lows, suggesting a highly confused state in resolving market direction. As can be seen from the stochastics chart, the %K line is taking the lead ahead of the %D line in heading lower, which indicates a strengthening bearish setup.
Trade suggestion
Buy Digital Put Option from 46.50 to 46.10 valid until 20:00 GMT September 14, 2016
