Oil prices initially soared over 5% following the announcement that Saudi Arabia and Russia signed a pact that included limiting output, but failed to specify production levels. The joint release highlighted that both countries are to form a working group to review oil market fundamentals and recommend measures to ensure price stability. They plan on meeting in Algiers later this month, in Moscow in Oct and at the next OPEC meeting in November 30th.
Following the announcement, Algeria’s Oil Minister supported the call for greater coordination within OPEC. He also said that oil prices below $50 was unacceptable. OPEC Sec Gen Barkindo also applauded the coordination agreement between Russia and Saudi Arabia. He also urged producers to back a stable oil market.
OPEC and non-OPEC members are no strangers to announcements to support coordination, but in the past they have often failed to follow through on action.
Price action on the US oil daily chart shows that the initial rally tentatively surged above the 100-day SMA, but has since pulled back and is now trying to hold onto the 50-day SMA, which currently trades around the $45.11 level. If we see price continue come under pressure and break below the $43.00 level, key support may come from the $42.00 level. It is around that area that price could form a bullish Gartley pattern. Point D is targeted with the 70.7% Fibonacci retracement of the X to A leg and the 127.2% Fibonacci expansion level of the B to C move. If valid, price could look to recapture the $46.00 region.
If the current pullback stalls and bullish momentum resumes, resistance may target the $46.50 to 49.50 zone.
The trade: Buy US oil at $42.25, with a stop loss at $41.25 and take profit at $45.25. The risk/reward ratio is 1:3