Oil prices started the trading week lower as supply glut concerns grow. Libya National Oil company noted that production has reached over 760,000 barrels a day, this is the highest level since December 2014. A Kuwait Petroleum official also commented that they see Kuwait raising output to 4 million barrels a day by 2020. Current Kuwaiti production is just under 3 million barrels a day.
Another catalyst for weaker prices came after both Libya and Saudi Aramco lowered prices of Arab light crude.
Price action on the US oil daily chart shows that recent weakness tentatively respected the 200-day SMA, but now that now the downward move is resuming. The high made from the bearish ABCD pattern on Jan 3rd remains key resistance. Currently price is now trending below all three key SMA(s). If the bearish move accelerates, key support may come from the $42.84 to $45.17 region, which comes from both the 127.2% and 161.8% Fibonacci expansion levels of the last major leg higher. The medium term outlook could see oil maintain $40.00 to $60.00 trading range. If we see bullish momentum recapture the 100-day SMA, which currently trades at the $51.78 level, further resistance may target the noted $55.24 level.
The trade: Buy US oil at $45.20, with a stop loss at $43.50 and take profit at $51.50 The risk/reward ratio is 1:3