• Oil drops to its lowest level of the week 
  • Price dips below $77 after comments from Saudi Oil minister
  • Al-Falih: “Likely to be a gradual oil supply boost in second half [of the year]”

There’s been a swift drop lower in the oil price this morning after some comments from the Saudi oil minister saw a wave of selling hit the market. Oil has been one of the stories of the year so far with the market surging higher as OPEC and non-OPC producers continue to restrict supply while geopolitical tensions surrounding Iran and the nuclear deal have also contributed to the rally.

Today’s comments from Khalid Al-Falih, the Saudi Oil minister, have got more than a hint of suggestion that the current restriction of supply may be phased out in the not too distant future. Selected remarks are as follows:

  • Likely to be a gradual oil supply boost in second half
  • Close to balancing the market, to discuss in June
  • OPEC + deal was a great success
  • We will do what is necessary in June OPEC meeting

The next OPEC meeting that Al-Falih is referring to is set to take place in Vienna on the 22nd June. 

The price action has certainly turned a little softer in recent sessions, although the longs appear reluctant to give up the ghost just yet. Wednesday’s DOE inventroy release was a prime example of this , when the market dropped sharply on a large build before buyers stepped in and stopped the declines. 

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 Oil declined initially after the DOE release but buyers proved stubborn and stepped in to send price higher. The market has since fallen below the low at 78.32 on these remarks from Al-Falih and is down almost 2% on the day. Source: xStation

Seeing as it’s Friday it is a good time to look at weekly candles as they are set to close tonight. 77.08 could be a key level to watch this evening in this regard as it marks the opening price from last week. A potential bearish engulfing candlestick is forming but it would need to close below 77.08 to further confirm a possible reversal. The RSI on a W1 chart has moved back below the 70 mark, indicating that the overbought conditions are unwinding and there is also a notable divergence here.

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 A weekly close below 77.08 would see a bearish engulfing candlestick form on W1. There has also been notable RSI divergence of late, with the latest rise in price not matched with an increasing RSI. Source: xStation

Compared to the high of 79.8 seen at the start of the year, the more recent RSI is clearly lower – which could be seen to suggest that the upwards momentum hasn’t been as great. 80.50 remains potentially key resistance going forward with no real swing level below to look out for until 70.60 – the area where price broke higher from at the start of last month.