Summary:

• Oil.WTI on course for highest weekly close since June 2015
• Market trading close to the $60 handle
• OPEC meeting next Wednesday expected to extend supply cuts

It’s been a good week for oil bulls, with Oil.WTI on track for its highest weekly close since the early summer of 2015. Both the API and DOE inventory releases this week saw drawdowns reported and the market is currently sitting on weekly gains in excess of 3%.

Price is now trading not far from a prior resistance level seen back in the summer of 2015 around 62.80 and this is an obvious place to look for possible resistance. If price reaches this level but sellers can defend the level then a pullback may occur, but a break above would leave very little by the way of swing level until around $78.

Weekly chart

 Oil.WTI has broken higher this week to trade at its highest level since June 2015. Source: xStation

Next week could be a major one for the the oil markets with OPEC set for their bi-annual meeting on Wednesday 29th November. The last one back in May saw the supply cuts extending until March 2018 and there is a growing sense of expectation that next week will see a further extension. The news in May saw a surprise reaction in the market with a large drop the day the the extension was announced which saw a sustained follow through for several weeks. Oil.WTI dropped from just shy of the $52 handle to a yearly low of $42.06 in just 20 sessions following the meeting – a decline of almost 20%. 

 Oil.WTI dropped almost 20% back in May following the previous OPEC meeting. Source: xStation

Since the low in June the market has recovered in quite sensational fashion, rising by more than a third. The question now is how will the market react if OPEC announce a further extension to the cuts – which seems the likely outcome of next week’s meeting 

Comments from Saudi Arabia, the de facto leader of OPEC, in recent weeks suggest an extension is likely, with some expecting them to run until the end of 2018. Bloomberg reported earlier that OPEC and Russia have outlined a deal on extending the supply cuts, not just within OPEC but also including non-OPEC countries. 

A supply cut is typically seen as positive for the market but the news back in May was widely expected. It appeared to be a classic case of buy-the-rumour-sell-the-news and traders will be watching closely to see how price reacts if a further extension is announced next Wednesday. Any notable selling will be sure to make Oil bulls skittish with not only the prior decline fresh in their minds but also the knowledge that the current level of speculative positioning in the market is extremely high. The elevated levels of net longs could see a rush to cover if the price begins to fall sharply which would exacerbate any selling. 

Having said that, an extension is fundamentally a bullish development and if price can react positively and push through 62.80 on the back of it then further gains may lie ahead. As for support 54.90 is a potentially key level to watch. Should price break below here despite an extension from OPEC – or possibly due to the lack of one – then bears will have the opportunity to push price back lower.