Weekly technical outlook:
Last week saw a very narrow range for WTI, and was almost entirely contained within the open/close range from the week before. That paints a very neutral picture. But the overall scenario remains slightly bullish if we look at last week’s candle structure and the fact that we remained above that weekly 200SMA.
The daily chart also shows an intact, but weak, bullish scenario with price remaining above the ribbons which are both still positive. We also have a rather fragile and vulnerable looking upwards channel, but I am a bit skeptical of its value right now.
But the main technical picture here on the daily chart is the continuing containment within that boxed range in the red rectangles. It was also a slightly negative factor that we failed to move above the highs set at the beginning of the week - and we still have not reached that first Fibonacci retracement from the big autumn downmove even though it is tantalisingly just above the market…
So, on balance, the daily chart is still neutral/optimistic, but waiting for some new stimulus to push it any higher:
The 4-hour chart has retained a positive feel all week and closed relatively firmly above both the weekly and 4H 200SMAs:
Weekly fundamentals outlook:
I suspect that we are going to see another mild week into the month-end. The main issue concerning stocks as well as Crude Oil is the global economic outlook – and, in particular, how the US-China trade negotiations develop. Therefore, the markets will be waiting to see what transpires from the meetings in Washington with Chinese Vice Premier Liu at the end of the week on January 30 and 31.
As I understand it, he was invited by US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer, and follows on from lower level talks earlier this month. Although there is no information concerning the agenda there does appear to be an air of optimism that some kind of positive results will emerge, and that seems to be giving at least some support to oil prices at the moment.
Brexit continues to be an issue and the next step will be on Tuesday when the UK parliament debates the “Plan B” motion and probably votes on it the same day. This will no doubt be a big issue for GBP currency pairs but maybe not so immediately dramatic for oil prices. Of course, the final outcome of the Brexit process will be significant for most markets.
Venezuela is another interesting geopolitical situation worth watching. International pressure on the present president, Mr Maduro, is increasing from a broader range of countries to arrange a new election in the near future. He is still supported by Russia and China and his own military, but other countries are following the US lead and supporting the self-pronounced new president Mr Guaido.
Venezuela is an oil-rich country and its exports income and GDP are both heavily reliant on oil sales. However, its oil production has collapsed dramatically under the current president’s term and the oil industry’s infrastructure is in a very poor state. But there is an even more significant issue:
Venezuelan oil goes mainly to the US, Russia, China and Cuba. But only the US pays for its oil in hard cash. The oil sales to the other countries are used as payments for outstanding loans or are on a barter basis for other goods/services. So if the US implements sanctions against oil supplies this will make a very bad cash situation even worse.
Therefore it is perhaps most likely that there will be a change of president. If this happens, and relations with the US suddenly improve as a result, we may see some fairly rapid improvements in the efficiency and output of the Venezuelan oil industry. Although that would not happen overnight, its impact on oil prices would take effect sooner.
The other supply factors are the ongoing watch on OPEC+compliance with its agreed production cuts and the output from US shale.
On balance the main issue that is likely to produce any significant move out of this current price range is the US-China talks.