Oil futures remain subject to high volatility ahead of tomorrow’s official OPEC meeting in Vienna, Austria. In today’s session, oil futures reversed to the downside, with the contract for January delivery on the New York Mercantile Exchange falling as low as $44.82/barrel, its lowest level since November 15th, and ended the session down 3.9% at $45.23/barrel.
Today’s downdraft occurred as non-OPEC member Russia stated they will not be in attendance at tomorrow’s meeting. Other news ahead of the meeting included headlines that Saudi Arabia, OPEC’s largest producer, would only accept cut exemptions from Nigeria and Libya. Saudi Arabia stated they are willing to walk away from a deal if Iran does not participate.
Also, OPEC sources told Reuters a meeting of experts in Vienna on Monday failed to bridge differences between Saudi Arabia and the group’s second- and third-largest producers, Iran and Iraq, over the mechanics of output cuts. Given tomorrow’s meeting and the uncertainty surrounding the outcome, high volatility will likely remain a factor in tomorrow’s trading.
As a result of today’s move to the downside, the contract dropped below first support at Monday’s $45.14 low, which represented a test of the low established on November 18th at $45.18, as well as a 61.8% retracement of the rebound from the mid-November low.
A sustained close below this level would increase the probabilities of a complete retracement of the November rebound with a move $42.95 for a low.
Should oil futures reverse directions once again and move to the upside, first resistance is near the mid-point of today’s wide trading range, near $46.00/barrel. Important resistance, however, does not come into play until the high established in last week’s trading at $49.20. A sustained break above this level would leave the target at former support near the $50.30 level.
Another source of potential volatility in tomorrow’s trading is the release of the weekly inventory report from the Energy Information Administration.