Oil Limping Into Year End | The Options Insider

Oil Limping Into Year End

Today’s Spotlight Market

Crude Oil bulls have been unable to muster any sort of fight going into the end of the year, as oversupply continues to eclipse all other news. Despite the huge slump in prices, Saudi Arabia is certainly showing no panic. According to Chairman Khalid al-Falih of Saudi Aramco, the state-owned Oil company, the belief is that world market for Crude Oil will balance in 2016. Mr. al-Falih noted that North American supply has plateaued and production is on the decline. While this is true, the government of Saudi Arabia has slowly been diversifying away from petroleum. The government there has been talking up economic diversification since 1970, but it seems the recent resurgence in North American production and slumping prices. In 2016, 70% of government revenue is expected to be derived from Oil, down from 73% and 89% in 2015 and 2014, respectively. This can partially be attributed to the price slump, but there seems to be a less positive long-term price outlook on the part of Saudi Arabia as well.

Fundamentals

The supply glut has been the main story for Oil this year and will likely remain a main challenge for Oil bulls into 2016. OPEC futures suggest that the cartel is adding 2 million barrels per day over oversupply, which equates to roughly 2% of global supply. This figure could increase as sanctions against Iran are lifted. Traders are looking forward to tomorrow?s inventory data, which is expected to show Cushing, OK stockpiles increase by 1.2 million barrels. The currency markets have been the lone bright spot for Crude Oil prices. The US Dollar Index has been unable to mount any sort of sustained rally and remains technically vulnerable. The boost from a weaker greenback could only be minor unless the Dollar finds itself in freefall.

Technical Notes? -? View Today’s Chart

Turning to the chart, we see the February Crude oil contract bouncing off support at the $35 level. Prices have not posted a solid close above the 20-day moving average, which would suggest a near-term low could be in place. A solid close above the $40 level could give Oil prices a bit of momentum. There is plenty of chart congestion between 40-50, which may have a limiting effect on Crude Oil prices.

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