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Today’s Trading Edge: Oil drops on inventory concerns and low expectations on a successful output freeze meeting

Posted by WorldWideMarkets . on Mar 29, 2016 5:51:42 PM

WWM_US_OIL_MAR_29_2016.jpg 

Oil prices sold off early in London, after Kuwait and Saudi Arabia jointly agreed to resume production at the 300K barrel-per-day Khafji field.  Weakness continued in NY after Iran announced that they would attend the April 17th Doha oil meeting, but will not take part in any production freeze.  This has been Iran’s position over the past couple months.  In February, Iran Deputy Oil Minister Javadi stated the short-term goal of increasing production to 700K to 4.7 million bpd.  Iran Oil Minister Zanganeh also reiterated his support for the potential output freeze once Iran was pumping at the noted levels. 

While not all OPEC members are on board for an output freeze, progress that some coordinated reduction may help prices firm up.  Two weeks ago, Kuwait’s Oil Minister also stated that it is difficult to imagine an oil freeze for some countries but not others.  Last week Kuwait stated they would consider a freeze only if all producers, including Iran came on board.  The freeze plan appears very difficult for everything to line up in favor for it and that could drive oil lower again on oversupply concerns. 

Price action on the US oil daily chart shows that a five-day slide with price occurred after the inability to reach the 200-day SMA, which currently trades at the $42.20 level  A bearish stance may be remain in place if the $40.50 level is respected.  As long as we do not see a major selloff with the US dollar, price may target the $35 region. If we see bullish momentum return, key resistance remains the $38.50-$40.00 zone.   

The trade: Sell oil at $39.25, with a stop loss at $40.25 and take profit at $36.25.  The risk/reward ratio is 1:3

Topics: Crude, commodities, WTI, oil price

 

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