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Crude Oil Prices Remain Locked in Downtrend

Brent crude oil prices remain under pressure as ongoing trade wars cause investors to position themselves for lower prices. The price trend has effectively been downwards since April 25 when crude oil prices reached a high of 75.49 dollars per barrel.

OPEC (Organization of the Petroleum Exporting Countries), which has in the past been able to influence the markets by adjusting their production, has seen their market share decline to 30% in July 2019 according to OPEC data. They have recently cut their crude oil production, but that has not been enough to stabilize the markets, and as it stands now, they will continue to restrain their supply until early 2020. In the past, the largest OPEC member, Saudi Arabia, has made it clear that they are not ready to lose market share and in 2014 they ramped up production to oust some of their competitors which eventually triggered a sharp oil price decline to $30 a barrel. As it stands now Saudi Arabia has made it clear that they want to keep the market in check-in 2020, and they report back that OPEC+ countries are favoring the same at least until March 2020. I also note that cutting supply amid a world economic slowdown, causing the price to rise could be what might send the world economy to even lower depths.

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On June 5 the price tried to stage a comeback from the $59.36 level, but reached $67.71 before trading lower and reached a low of $55.90. The break to the June 5 low of $59.36 low on August 6 triggered a break to a double bottom pattern as the January 25 low was also at $59.36. The pattern is now suggesting prices could slide to $43.23. However, that would be a steep decline of 26.70% from today’s level of $59.29. Hence, I don’t think it is reasonable to assume such a fall will happen swiftly or easy.  However, a revisit of the 2019 low of $50 would not be unsurprising given last week’s very soft US Markit PMI figures, and the latest round of tit-for-tat tariffs by US and China. OPEC+ also restraining themselves, and promised to do this until next year, and allowing a reasonable amount of crude oil to be produced could keep the price under pressure.

Technically, the trend will remain under pressure as long as the price trades below the August 2 high of $62.92, and as I have been sharing over the last few weeks I think traders will be interested in short-sell between $60.43 and the $62.92 level as it will offer them a good risk-reward ratio. The next support level and potential target are the August low at $55.86, followed by the December 27, 2018 low at $51.97.Download our latest quarterly market outlook for our longer-term trade ideas.

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