It looked as if an OPEC deal was nearing.
Iran’s oil minister said it was “highly probable that OPEC members will reach a consensus at the November meeting,” after news surfaced that OPEC would given Iran greater flexibility.
Now we’re not so sure.
Iran now says an OPEC agreement is effectively dead, with the country now saying the Saudis have officially declared war on oil prices. In fact, according to Iran, the Saudis are now questioning all agreements and negotiations on freezing oil prices.
Should OPEC fail this week oil could easily slip $10 a barrel or more.
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The markets must also contend with the issue of oversupply, as well as a stronger dollar, which itself broke above prior resistance points. The dollar rise to its highest point in more than a decade is leaving many to wonder how sustainable the move is, especially with the newest U.S. jobs report being released shortly.
Another key issue will be the Federal Reserve’s potential move to raise rates.
Those issues, coupled with potential OPEC failure could force crude oil back to $43 support, near-term. Failure there could result in oil moving to retest August 2016 support of $39.26, as well. For these reasons, I’m bearish on oil and believe we will continue to see sellers coming back this week.
We can also see a well-defined neck and shoulders, as well.
In this case, we have a peak (left shoulder), followed by a larger peak (head), followed by a smaller peak (right shoulder) again, or what we refer to as a head and shoulders pattern.
If and when the neckline is broken, the pattern is said to be complete, and we begin to look for lower lows in the chart. Typically, head and shoulder patterns are reversal patterns that can indicate a potential shift in bullish sentiment to bearish sentiment.
Again, we expect to see a test of $42, near-term on OPEC failure with a potential move to prior support at $39.26. Failure there sends us to less than $36, and cripples the broader market rally with oil at recent highs.
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