Crude oil price under pressure on demand concerns; OPEC report eyed

Summary:
• Crude oil price was under pressure as investors waited for a report by OPEC. They are also concerned because of demand issues that have emerged

Crude oil price was under pressure as investors continued to focus on demand and supply. The price of Brent and West Texas Intermediate (WTI) rose to $28 and $19.97 respectively.

A few things have happened since OPEC members agreed to cut almost ten million barrels per day on Sunday.

First, in a report released yesterday, the International Energy Agency (IEA) said that demand would decline at an unprecedented rate. The agency’s model factored-in the supply cuts that were announced on Sunday.

Second, there were divisions between big oil and American shale producers in a meeting that happened on Tuesday. As I reported yesterday, the big oil producers oppose any measures to reduce supply while smaller shale companies are advocating for cuts. These divisions could break the deal that was signed on Sunday.

Third, the Energy Department in the United States is mulling a deal to pay producers to leave oil in the ground. The goal is to make the undrilled oil part of the US government emergency stockpile. While this measure will be controversial, it will also be lawful because the federal law allow the department to hold as much as 1 billion barrels in reserves. However, this will likely not happen because of the divisions in congress.

Fourth, the US has said that tariffs on crude oil were on the table even with the deal that was signed. According to Bloomberg, it is unclear how these tariffs would be applied.

Yesterday, data from EIA showed that inventories rose by more than 19 million barrels in the previous week. This was the biggest jump on record and was higher than the estimated 10.1 million. Today, we will receive the monthly report from OPEC.

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Crude Oil Technical Analysis

Looking at the weekly chart, we see that the price of Brent crude oil has formed an island reversal pattern since it declined sharply in March. We also see that the pair has found some support at the 2016 low. This pattern means that there is an indecision between bulls and bears. Therefore, I expect the price to remain being bearish if it holds below the 2016 low of 27.57.