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This will determine whether oil's next move is $40 or $50

Oil Rig, Operator
Andrey Rudakov | Bloomberg | Getty Images

Traders divining the oil market's next move are watching a key level on West Texas Intermediate futures that could determine whether $40 or $50 is next in the cards.

There are a convergence of fundamental pressures pushing and pulling on the price of crude. The idea that OPEC producers and others could talk about a freeze or other action in September has been lifting prices. But the idea that Saudi Arabia is pumping at record levels in an oversupplied market is a bearish sign, and according to a report from Reuters, it will pump even more.

Add to that the U.S. government report that domestic production, which has been in fairly steady decline, saw the biggest weekly increase last week in 17 months. U.S. output is still about a million barrels below last year's level but it rose to to 8,597,000 barrels a day last week, which is subject to revision, from 8,445,000 the week earlier.

On the bullish side of the price equation, Nigeria and Libya still have a lot of capacity offline, and the industry is watching Venezuela because political and economic uncertainty there could easily threaten production and take more barrels off the market.

So all the wild cards for oil prices make the issue of whether the global oil market has been sufficiently rebalancing critical, and will decide whether oil stays closer to $40 or $50 or somewhere in between. There is also the level that traders are watching as the WTI contract for September trades above $46.