Low crude oil prices are the new long-term norm?

Today, we see some correctional movement in oil prices. Whereas, yesterday Crude Oil WTI traded at its 3-month lows. Is it sound to say that low crude oil prices are the new long-term norm?

15 November, AtoZForex – Last week the market focus was entirely directed to the US presidential elections. Donald Trump’s victory allowed oil prices to create the short-term ascending rebound as the initial reaction. Following this reaction, yesterday, WTI slumped to the next psychological support at $44 USD per barrel in the absence of risk aversion.

The US elections is not the only reasons for the sell-off in the energy market. One of the other factors is the approaching OPEC summit in Vienna. The market players increasingly doubt the success of the forthcoming meeting of producers. In October the cartel has set a new record for production, increasing production by 240K barrels/day to 33.64 million barrels/day. The International Energy Agency (IEA) does not expect the intensification of growth demand for oil.

In addition, its contribution for the current depreciation of Crude Oil has made Trump’s victory in the presidential elections. Market participants cautiously look at the Republican plans to achieve energy independence. This includes the abolition of the environmental constraints for the production of energy in natural reserves. Moreover, US shale oil continues to increase drilling efficiency, which is also an important factor. In such conditions to cut down quotas in OPEC – means simply to give a market share to the American shale oil companies.

Crude Oil (WTI) technical analysis

New long-term pattern in the oil prices Crude oil (WTI) 1D chart (click to zoom in)

Currently, we observe corrective pullback after a long-term (5-week) drop in oil prices. This was also confirmed by price action. Following the previous decline on the daily chart, was formed bullish reversal candlestick pattern, so called hammer pattern.

  • SMA analysis has a neutral approach as the pair has been trading between the moving averages 50, 100 and 200.
  • The RSI is bullish as the indicator is directed upward.
  • The Stochastic Oscillator is in the neutral zone and generates a buy signal as the K line rises above the D line.
  • The MACD histogram is in the negative zone and below its signal line and does not generate any clear signal.

Summarizing our analysis, as for short-term prospects for WTI we expect a reversal of quotations and recovery of oil prices. In the next two days, the market players will traditionally focus on the statistics on crude oil inventories in the US. Meanwhile, we believe that low crude oil prices are the new long-term norm, due to the fundamental background.

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