Here’s a potential technical setup in oil ahead of a potentially market moving meeting from OPEC this week.
Buy the Dip in Oil?
On the four hour chart above of NYMEX Crude Oil futures, we can see that the market recent made highs at $63.85 before dipping back and finding support the $59.00 – $60.00 range.
This area was strong support in February that lead to the fresh highs in March, so it’s likely the bounce we’re seeing off of these levels is a repeat of that market behavior, likely reflecting trader’s bullishness on the reopening trade theme.
Looking forward, traders may continue to be bullish, depending on the outcome of the upcoming OPEC meeting on Thursday. Expectations are for OPEC to continue to ease back the deep cuts from last year, with some analysts expecting an additional 500K to 1.5 million barrels/day starting in April.
If we see that increase come in below expectations, that could be a short-term bullish catalyst for oil this week, and we could see a move in oil prices quickly retest the $63.85 high.
If OPEC agrees to increase production above that range, it’s likely oil could dip back to the rising ‘lows’ pattern, or maybe even break it depending on how big of an increase we see.
Keep in mind too that U.S. Shale production has been slow to recover, likely another underlying driver for oil’s rally. And as long as U.S. companies continue to hold off from a large ramp back up in operations, oil dips are likely to be short-lived for now if OPEC keeps a tight cap on production.
What do you guys think? Is oil a buy here after bouncing off of strong support once again? Or are you expecting OPEC to production significantly this week?
Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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