Home Commodities United States Oil (USO) falls on scepticism over Trump’s Saudi-Russia output deal

United States Oil (USO) falls on scepticism over Trump’s Saudi-Russia output deal

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United States Oil (USO) falls on scepticism over Trump’s Saudi-Russia output deal

Oil prices fell on Friday, coming off their biggest one-day gains in the previous session, after US President Donald Trump said he had brokered a deal between Saudi Arabia and Russia to cut output, but made no offer to reduce US production.

Brent crude futures fell 3.27 per cent, or 98 cents, to $28.96 per barrel as of 0335 GMT, after having soared 21per cent on Thursday.

US West Texas Intermediate (WTI) crude futures fell 4.46 per cent, or $1.13, to $24.19 a barrel, after having surged 24.7 per cent on Thursday.

Friday’s drop reflected market scepticism over whether a deal to call off the Saudi-Russian price war would go ahead if the US does not scales back output, and whether such a cut would be sufficient to balance the market in face of a deep economic recession caused by the coronavirus pandemic and draconian containment measures.

Trump said the two countries could cut output by 10 to 15 million barrels per day (bpd) – an unprecedented amount representing 10 per cent to 15 per cent of global supply. Trump said he had made no offer to cut US output.

Saudi Arabia called on Thursday for an emergency meeting of Opec and non-Opec oil producers, saying it aimed to reach a fair agreement to stabilise oil markets.

Analysts said both Riyadh and Moscow will be looking for the participation of other countries, in particular the United States.

Saudi could drop production down to around 8.5 million bpd but would likely be reluctant to go below that level because of the desire to maintain associated gas production, while Russia will likely look for some measure of sanctions relief from Washington, said Helima Croft, global head of commodity strategy at RBC Capital Markets.

Washington will not ask US domestic oil companies for a coordinated cut in production and is still awaiting the details of planned cuts in Saudi Arabia and Russia, a senior administration official told Reuters.

The Canadian province of Alberta, home to the world’s third-largest oil reserves, is open to joining any potential global pact to reduce a glut of crude, Premier Jason Kenney told Reuters on Thursday.

With the coronavirus pandemic worsening, Citi analysts forecasted the decline in oil demand in the second quarter could be 18-20 per cent for the world, or 18-20 million bpd, which in turn should see refinery runs collapse by over 2 million barrels per day, triggering an unprecedented growth in inventory of some 1 billion barrels over two months.

The proposed cut would at least ease some pressure on a global shortage of oil storage, analysts said.

Even with the huge gains on Thursday, prices have still slumped nearly 60 per cent this year. 

Technical Indicators

Overall, the bias in prices is: Downwards.

Note: this chart shows extraordinary price action to the downside.

By the way, prices are vulnerable to a correction towards 7.99.

The projected upper bound is: 6.36.

The projected lower bound is: 3.58.

The projected closing price is: 4.97.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 43.5135. This is not an overbought or oversold reading. The last signal was a buy 1 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 36.29. This is not a topping or bottoming area. However, the RSI just crossed above 30 from a bottoming formation. This is a bullish sign. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 0 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 31. This is not a topping or bottoming area. The last signal was a buy 2 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 3 period(s) ago.

Rex Takasugi – TD Profile

UNTD ST OIL FUND closed up 0.730 at 5.110. Volume was 613% above average (trending) and Bollinger Bands were 79% wider than normal.

Open     High      Low     Close     Volume___
4.580 5.670 4.500 5.110 321,813,760
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 4.71 8.63 11.07
Volatility: 128 132 75
Volume: 138,136,016 67,360,200 35,717,324

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

UNTD ST OIL FUND gapped up today (bullish) on heavy volume. Possibility of a Breakaway Gap which usually signifies the beginning of a major market move. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
UNTD ST OIL FUND is currently 53.8% below its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of USO at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on USO and have had this outlook for the last 55 periods. Our momentum oscillator has set a new 14-period high while the security price has not. This is a bullish divergence.

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