WTI: Bulls making back some lost ground with the 21-DMA locked on

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  • West Texas Intermediate crude on a spot basis rises to a high of $53.52 on trade talks optimism.
  • Bulls are still 2% away from the 21-Day moving average target.

West Texas Intermediate crude on a spot basis has climbed to a high of $53.52 from a low of $51.39 in a 4% move on the daily candle. The conflicting headlines over US/Sino trade talks have provided two-way business across the global financial and commodity markets. Specifically, the headlines have parsed fundamentals such as OPEC’s monthly assessment of global supply and demand. The build-up to the talks was drowned in scepticism which had lead to a sell-off in riskier plays such as stocks and oil at the start of the week.

However, just as traders were banking on further sell-offs following an article in Chinese press that stated the Chinese delegation would cut the negotiations short considering the damage done via the US State Department in the blacklisting of Chinese companies, there was a quick turn around in sentiment when a Bloomberg News reported that the White House could put in place a currency pact and suspend tariff increases that are set to take effect Oct. 15. “Big day of negotiations with China. They want to make a deal, but do I? I will meet with the Vice Premier tomorrow at The White House,” said Trump and risk rallied. Subsequently, WTI for November delivery climbed 68 cents, or 1.3%, to $53.27 a barrel on the New York Mercantile Exchange. 

OPEC is wary of the ‘catastrophic’ consequences of a no-deal scenario

“Barkindo’s messaging suggests that OPEC is wary of the ‘catastrophic’ consequences of a no-deal scenario in the US-China trade talks,” analysts at TD Securities explained, adding: 

  • “However, while the OPEC+ group of producers are likely staying the course with their production curtailment agreement until at least the end of Q1 next year, it is increasingly unlikely the cartel will be able to deliver the required cuts quickly enough to prevent a loosening of conditions next year.
  • Further, there are concerns that Saudi Arabia could have difficulty persuading allies to deepen their curtailments when the cartel meets in December.
  • When the supply side of the equation is the concern, OPEC policy has proven to be successful, but the cartel’s effort may prove fruitless when demand is the issue, which raises major concerns for the energy market. We don’t expect significant CTA flow in the near-term.”

WTI levels

While the price has corrected, it is still some way off, 2% in fact, from the 21-Day moving average target. Bulls will need to get over the gain line in order to find a footing on the 55 handle with prospects of a run through the 50 and 200-DMAs. A 50% Fibonacci retracement of the 16th Sep to 3rd Oct lows will then come into play in the 57 handle. On the other hand,  a break below the 50 handle opens the Nov 2018 lows at 49.39 which are guarding the 46.90 level ahead of the18th Dec lows down at 45.77 ahead of the Dec double bottom lows below 42.50.

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