A quick look at the oil price ahead of this Wednesday’s OPEC meeting when the cartel is expected to raise daily output by 400k barrels per day. As we can see the price is currently contained within the spread of last Thursday’s volatility candle which despite taking the oil price to the psychological $100 per barrel price point closed the session at $92.81 with a deep upper wick and very high volume. In other words, a weak candle and the opposite of what many were probably expecting given the devasting conflict in Ukraine. However, I would suggest that the spike to $100 was also the signal for significant profit-taking as traders and investors waited to see what would transpire next.
The next has been described as ‘Financial Bliztkreig’ as Russia has been hit not only by economic sanctions but also sanctions against its Central Bank making it difficult for Russia to tap into its war chest of $625 bn (as of the end of January). This ‘war chest’ has been built up to backstop any sanctions as well as a run on the Russian Ruble and is made up of assets, foreign currency reserves, and 2.3 tonnes of gold which are all stored in Russia. This is unusual as most countries hold their gold in either London or New York thereby making it easier to buy and sell bars. Holding it close will make it more difficult for Russia to offload but not impossible. However, it also makes it difficult for the US, UK, and the EU to successfully impose sanctions on Russia’s gold.
But returning to the oil price both upside and downside levels are clearly indicated. $100 is the first barrier and in today’s trading, the price has already climbed to $99 at the time of writing but whether it punches through and holds has to be accompanied by good volume. A successful break then sees a succession of important levels, primarily on the monthly chart come into play. These start at $110 region which is the underside of deep congestion that was created between 2009 and 2014. This dense area is where the oil price is likely to struggle but if the current situation deteriorates and the increase in supply from Opec and release of individual country reserves fail to halt the rise in the commodity the $140 per barrel price point then comes into view.
By Anna Coulling
Charts courtesy of Ninjatrader and indicators are my own and available from Quantumtrading
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