Crude oil prices posted three straight weeks of gains reversing off the lows near $43.40 and thus marking the completion of the head and shoulders pattern that the readers were first alerted to back in August.

The current rally in oil prices is well supported by the fundamentals. The EIA’s weekly crude oil inventory report showed 5 weeks consecutive weeks of drawdown. Furthering adding to the bullish fundamentals was also the surprise agreement between OPEC leaders in Algeria on freezing production levels in the range of 32.50 – 33.0 million barrels per day. Oil traders will be looking to today’s EIA inventory report.

OPEC leaders look to ink the production freeze deal at Nov 30 OPEC meeting

While oil prices took a back seat since the Algiers summit, OPEC officials are slowly starting to turn back the heat. Last Friday, October 7^th, it was reported that OPEC officials were planning to lay the groundwork to reach a firm conclusion and formalize the Algiers agreement at the next OPEC meeting on November 30th. Reuters reported that some of the OPEC ministers would be meeting in Istanbul this week for the World Energy Congress.

Although nothing big is expected to come out of this meeting, officials are hoping to smooth out any differences between the members. Oil prices rallied towards $51.59 a barrel after Russian President, Vladimir Putin, told the energy conference in Istanbul that Russia “stands ready to join common efforts to limit production.”

The first formal meeting is expected to take place in Vienna on Oct. 28 – 29 followed by another meeting to determine the long-term strategy and other administrative issues. These meetings are expected to culminate in the November 30 meeting where a formal agreement is likely to be inked.

OPEC’s secretary general, Mohammad Barkindo said in Washington earlier that “consultations remain ongoing among the OPEC-14, the High-Level Committee initiated by the OPEC conference is moving forward on the implementation of the Algiers decision.”

33.23 million bpd: OPEC Crude Oil Output in September

Latest reports from Platts showed that OPEC’s Crude oil production in September rose by 110k bpd from August to 33.23 million bpd. September’s OPEC production was the fourth consecutive month of increase in Crude oil production from the OPEC countries with output increases seen by Libya, Iraq, Nigeria and Iran which combined managed to offset production declines from Saudi Arabia, Venezuela, Angola, and Qatar.

OPEC Production Levels, September (Source: Platts)

Saudi Arabia, the biggest oil producer, saw the supply being cut down in September. The data from Platts puts Saudi oil production to 10.55 million bpd after production hit an all-time high of 10.66 million bdp in August. The Paris-based IEA reported on Tuesday that oil market is likely to continue to remain in a state of oversupply through H1 of 2017 and noted that there were “worrying signs” for oil prices in the near-term. The IEA lowered its forecasts for oil demand for 2016 to 1.2 million bpd. The IEA also cautioned that the production gains from OPEC could more than offset the production cuts.

Crude Oil – Technical Outlook

WTI crude oil prices are seen declining for two consecutive days as prices pull back from the weekly resistance of 51.80 – 50.00. A weekly doji pattern could spell near-term downside in oil prices. On the 4-hour chart, we can see that oil has broken below the $50.55 handle. Expect to see near-term consolidation in prices, especially with the Stochastics being seen near the oversold levels. The momentum and the upside off the current level near $49.80 will be key. Failure to post a new high, breaking above $50.55 could signal near-term weakness in oil prices. Support is seen at $46.42.

Crude Oil November Contracts