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Oil update: price reverses ahead of monthly low to keep bull flag formation intact

The price of oil trades in a narrow range despite an unexpected decline in US inventories, but a bull-flag formation may unfold over the coming days as crude appears to be reversing a head of the monthly low ($80.87).

Source: Bloomberg

The recent series of lower highs and lows in the price of oil unravels as it hold above the weekly low ($81.30), and the crude may attempts to break out of a descending channel with the Organization of Petroleum Exporting Countries (OPEC) on track to “adjust downward the overall production by 2 mb/d” starting in November.

It seems as though the shift in OPEC’s production schedule will have a greater influence on the price of oil even as the Biden Administration plans to release “15 million barrels from the Strategic Petroleum Reserve (SPR) to be delivered in December” as a key reversal appears to be taking shape following the Ministerial Meeting from earlier this month.

In turn, the price of oil may longer respond to the negative slope in the 50-Day SMA ($87.01) as OPEC’s most recent Monthly Oil Market Report (MOMR) warns of slowing demand, and it remains to be seen if the organization will react to the developments coming out of the US as fresh figures from the Energy Information Administration (EIA) point to robust demand.

Source: DailyFX

The update from the EIA shows crude stockpiles narrowing 1.725M in the week ending October 14 versus forecasts for a 1.38M rise, and a further decline in crude inventories may keep the price of oil afloat as market participants brace for a slowdown in OPEC supply.

Source: EIA

Nevertheless, a deeper look at the figures from the EIA show weekly field production increasing for the first time since August, with the figure climbing to 12,000K from 11,000K in the week ending October 7, and the development may provide OPEC with greater scope to further adjust its production schedule at the next Ministerial Meeting on December 4 as rising interest rates across advanced economies curbs the outlook for oil consumption.

With that said, the advance from the September low ($76.25) may turn out to be a key reversal in the price of oil as it defends the January low ($74.27), and a bull-flag formation may unfold over the coming days as crude appears to be reversing a head of the monthly low ($80.87).

Crude oil price daily chart

Source: TradingView

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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