Oil markets are in downtrend; Saudi’s may choose to cut production

  • UKOil
    (${instrument.percentChange}%)
  • USOil
    (${instrument.percentChange}%)


The weekly charts of UKOil and USOil show downtrends, with both instruments charting lower peaks followed by lower troughs. Moreover, each instrument's stochastic is below the 20 levels (green rectangles). These levels indicate a substantial underlying bearish momentum. The longer the oscillators maintain these levels, the greater the chance of lower energy prices.

This situation is a significant change from the period following Russia's invasion of Ukraine. Then, the geopolitics introduced a supply shock expectation which drove UKOil to a high of $133 and USOil to $129. However, since then, UKOil has dropped 30% to trade at $93, and USOil has declined by 32% to $87.

A worry is that the drop in prices is associated with demand destruction instead of supply coming back online. The US has already printed two consecutive quarters of contraction and is in a technical recession. Moreover, recession fears abound, with Europe particularly susceptible.

A possible response is for OPEC+ to cut back on production to support the market. This scenario is a distinct possibility as Saudi Arabia might want to send a message about dealing with Iran. Given this possibility, a stochastic above 20 may lock in a near-term bottom if there is a production cut.

Russell Shor

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.

Disclosure

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.

Risk Warning: Our service includes products that are traded on margin and carry a risk of losses in excess of your deposited funds. The products may not be suitable for all investors. Please ensure that you fully understand the risks involved.

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}