WTI expected to retest year’s lows

THE recent Opec+ meeting announcement to cut oil output by 2.2 million barrels per day for early next year, led by Saudi Arabia rolling over its current voluntary cut, has failed to inspire a recovery in oil prices. Traders had high expectations prior to the meeting, anticipating that additional supply cuts might be deeper. Another factor weighing on oil bulls was US crude oil production setting a record for a second successive month, driven by a boost in industry efficiency. In addition, data from last week showed that October US factory orders fell by 3.6 per cent, exceeding the 2.8 per cent decline analysts had expected and marking the most significant drop in over three years, further dampening oil market sentiment.

From a technical perspective, multiple bearish signals remain for WTI crude oil. Firstly, it failed to overcome the 200-day moving average resistance at US$78 per barrel, exhibiting a bearish long upper wick and a selloff ensuing in the aftermath of the Opec+ meeting. This key level is also confluent with a prior horizontal support observed in July and August, which is currently acting as a resistance. Oil remains in a bearish range structure, continuing the bearish momentum initiated by the breakdown of a bearish flag in late October. Secondly, WTI’s current price structure follows a downtrend channel, and is presently on the fifth wave downwards of a bearish Elliot-wave structure. Lastly, the Moving Average Convergence Divergence technical indicator continues to display bearish momentum and could form an impending bearish crossover again.

Looking ahead, further downside risks remain for WTI as it appears poised to retest the year’s lows. WTI crude oil looks set to complete the last leg of the current downtrend, heading towards the confluence of supports at the US$67 per barrel year-low level. This aligns with the downtrend channel support and a triple bottom pattern observed across June and July, offering greater conviction for bulls to load the dip.

The writer is research analyst at Phillip Securities