Crude fell more than 2.2 percent on Tuesday, settling at $43.104 per barrel, the lowest level since November, amid increased supply from several key producers which undermined the efforts of high compliance by OPEC and non-OPEC oil producers with a deal to curb oil outputs.
Oil prices’ breakout of the descending channel yesterday increases the possibility of further decline, to its lowest settlement since Nov. 15, two weeks before the Petroleum Exporting Countries and other producers made a cut deal by 1.8 million barrels per day (bpd) for six months from January.
“Given the expectation that you’ll see higher production levels in several areas of the world, it’s going to offset all they’re taking off the market,” said Gene McGillian, manager of market research at Tradition Energy.
The descending momentum, seems continue even though OPEC, Russia and some other producers extended limits on output until the end of March 2018. Oil supplies jumped in May as output recovered in OPEC such as Libya and Nigeria, in addition to increased U.S. oil output, both partially exempt from the production reduction agreement.
Libya’s oil production rose more than 50,000 bpd to 885,000 bpd after the state oil company settled a dispute with Germany’s Wintershall. Meanwhile Nigerian oil supply is also rising. Exports of Nigeria’s Bonny Light crude are set to reach 226,000 bpd in August, up from 164,000 bpd in July.
Ahead of weekly U.S. inventory reports, U.S. crude oil stocks were forecast to have fallen 2.1 million barrels last week, while gasoline was seen building by 400,000 barrels after last week’s data showed an unexpected build that weighed heavily on the market.
Technically oil prices already broke lower to the downward channel with also hitting six-week lows against the U.S. dollar, giving a sign that it may keep the momentum in bearish market. Near-term outlook is not encouraging as price & the Relative Strength Index (RSI) is running in pessimism unless some rebound in a few days back to the channel. In the event that the oil continues to decline, traders may look for adding more in a short position to follow the momentum. Alternatively if prices fail to drop further and reverse to rally, traders may look forward to chasing some rebound on a long position.
Chart 1: WTICOUSD Daily
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