Oil prices plummet as Saudi output set to fully recover, trading the breakouts

Big retracement as supply side woes may ease following comments from the Saudi energy minister that output set to recover by month’s end.

Oil prices drop over 6% on assurances that output recovery will be swift

As if the weekend attacks weren’t enough to imbue the oil markets with heightened risks by sending oil prices gapping higher Monday morning, comments from Saudi Arabia’s energy minister that output from the oil-exporting major would fully recover by the end of the month sent energy prices plummeting, even as other news reports quoted officials saying otherwise. And although the weekend gap hasn’t been filled, it has been keeping long traders tense should a downside price movement test their heavy long positions.

Oil sentiment: key figures

Retail bias, which stood at a heavy long 73% at the end of last week, was near the middle at 51% following a massive take-profit on long positions when the initial surge occurred. However, fresh longs have entered following the 6% price drop anticipating further price gains, and as of today morning the bias has moved 12% higher to a majority long 63%. That is still miles away from CoT bias of an extreme long 84%, and where unlike retail traders the bulk of those longs were initiated at far lower price levels.

Oil supply side and demand side factors

The focus thus far has been on supply side factors keeping energy prices both volatile and finishing lower and hurting both retail and institutional traders who are both majority long. However, while EIA will be released today expected to show a 2.1M deficit following yesterday's API surplus of 0.6M, demand-side factors will be in focus and will depend on how the Fed will react this evening. Should the Fed not introduce significant easing to the US President’s liking, and it could worsen the US-China trade war if the US imposes more tariffs on China as occurred last time the day after the Fed's 0.25% rate cut on July 31. The reason for its importance is that worsening trade risks would take oil prices lower on demand side worries.

Oil volatility: the technical overview and strategies


From a technical standpoint, given the drop didn’t undo all of Monday’s gains, the energy commodity’s price is still above all its main moving averages – both short-term and long-term, with a positive DMI, a non-trending ADX, and (relatively) at the upper extremes of the band. That translates into a consolidatory outlook with a positive technical bias. However, the underlying remains volatile and technicals hold less relevance in the face of fundamental forces, and hence conformist technical strategies involve not reversals but breakouts be they a buy off the 1st Resistance level of 59.99 with a stop loss of 59.37 and a take profit of 61.23, or selling the 1st Support level at 57.51 with a stop loss of 58.13 and a take profit of 56.27 anticipating a near complete closure of the weekend gap.

Those looking to trade a contrarian strategy should only do so after a reversal and not fade the increased volatility, with a sell off the 1st Resistance level of 59.99 but only after a reversal (wait for the level to breach first significantly and as it retraces sell at 59.99) for a take profit at 58.75 and a stop loss of 60.61, or buy the 1st Support level at 57.51 after a significant reversal with a stop loss of 56.89 and targeting the Relative Starting Point 58.75.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Trade on commodities

Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1

  • Wide range of popular and niche metals, energies and softs
  • Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
  • View continuous charting, backdated for up to five years

1In the case of all DFBs, there is a fixed expiry at some point in the future.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.