Know Things About This Crude Oil Before Trading
Maybe at this time you – or even a world trader – wondered when the decline in crude oil prices would end? The following are some of the things you need to know before determining the steps in dealing with crude oil.
Venezuela economic emergency
Among all oil-producing countries, Venezuela is the most active in lobbying leaders of other countries to adjust the level of oil production.The new Venezuelan oil minister, Eulogio del Pino, had flown from Moscow to Riyadh and proceeded to Doha to try to convince officials there to do something to stabilize world oil prices.
If we look at the Venezuelan economy in general, we will be able to understand why Venezuela is so eager to reach the agreement. Crude oil holds a 95% share of Venezuela’s export sector and 25% of their total GDP (GDP). This means, Venezuela will feel safe and happy if world oil prices trade above $ 100 per barrel and – of course – not if oil prices are in the current price range ($ 26-30 / barrel).
Earlier this year, the Venezuelan president had declared economic emergency status, because the country’s economy had experienced shrinking in eight consecutive quarters. Economists estimate that Venezuela will only be calm if at least oil prices return to the range of $ 111 / barrel, even then the level breaks even.
Four countries decided to maintain production
Venezuela’s efforts paid off, though not as expected. At the very least, Venezuela’s persistence was responded to by the meeting of OPEC and non-OPEC member countries in a negotiation. The emergency meeting was attended by Iran, Algeria, Nigeria and Ecuador on another weekend.Then three days ago Russia, Venezuela and Qatar also participated in the negotiating table. Unfortunately the negotiations failed to produce a solid agreement.
So far, Saudi Arabia as an “oil king” is still stubborn by refusing to cut production. Some analysts argue that the Saudis seem more interested in regaining their markets from competitors. It is understandable because world oil prices are still far above the cost of their oil production. Falling oil prices have allowed competitors to get out of the arena. Unfortunately, the facts that occur are not like that.
Then came the news that again made oil prices corrected on February 16, 2016. Qatar, Venezuela, Russia and Saudi Arabia agreed to maintain their oil production at the same rate as January. This certainly dims the hope of massive production cuts.
Iran decided not to participate in the deal, so it still gave little hope of easing global crude oil oversupply . At present, the world is still experiencing excess inventories between 1 to 2 million barrels per day.
Technically, oil prices are still in a downtrend
While meetings and speculation about the possibility of reaching an agreement among oil producers is still ongoing, technically oil prices are still in a downtrend for the medium term.
The graph above is the movement of oil prices per barrel in the H4 time-frame . Since October 2015 to this day (February 19, 2016) oil prices are seen moving in a downtrend. Indeed, the price has managed to break above the downward trendline seen, but there is still a technical resistance in the range of $ 34.80. There is a possibility that the world oil price will be restrained first in that area.
Crude oil prices will likely continue to strengthen if the resistance at 34.80 breaks, with the target of further strengthening up to the 38.35 range for the medium term.