The pledge by Saudi Arabia and Russia to increase oil supply cuts is having a positive effect on the UKOil weekly price chart. It suggests a possible change in its primary trend.
- Last week, Monday, Saudi Arabia announced an extension of its 1 million bpd production cut for July into August.
- Russia announced a 500,000-bpd decline in exports in August.
- These add to the existing voluntary production cuts.
- The voluntary drops amount to just over 1.66 million barrels per day.
- OPEC+ initially announced these cuts in April.
- The coalition, during their meeting in June, agreed to extend these cuts until the end of 2024.
The effect of these action is that UKOil has been supported around the $72 level since April (red shaded horizontal).
We have chosen the weekly candle of 18 March as the reference trough, T, and the weekly candle of 8 March as the reference peak, P. The support of $72 (red shaded horizontal) is market as the higher trough, HT, from T.
The candle labelled 1 is a bullish reference candle. I.e., it has the lowest low in at least a three-candle cluster. Candle 2, closed above the reference candle' s high (red dashed horizontal). This completed a bullish reference candle reversal.
It is a good idea to keep an eye out for reference candle reversals as these lay the foundation for all swings. However, they do not all lead to swings.
evertheless, the fact that a bullish reference candle reversal has now charted implies that UKOil may move into an upswing (although this is not a certainty) on a weekly timeframe. If a swing ensues, and moves higher than reference peak, P (black dashed horizontal), UK Oil will have charted a higher trough followed by a higher peak. This is the requirements for UKOil to trend up.
A clue to this scenario will be if the weekly RSI is able to pop above 50 (blue arrow) and maintain on the bullish side of the oscillator.
Besides the supply cuts buoying prices, unnamed sources last week, at the OPEC conference in Vienna, told Reuters that the group's outlook for demand is positive. It was suggested that OPEC's inaugural 2024 outlook later this month will present an optimistic perspective on demand.
This seems corroborated by the International Energy Agency, which said in its June Oil Market Report that "Global oil demand continues to defy the challenging macroeconomic climate and is set to rise by 2.4 mb/d in 2023, outpacing last year's 2.3 mb/d increase as well as earlier expectations."
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.