Last week was an interesting one for oil traders, with the rally of Monday promising much, only for this move to be snuffed out during the remainder of the week, as the WTI Light Sweet Crude (USO, quote) contract for January closed close to the open at $65.84 per barrel.

Even a surprise figure for oil inventories on Wednesday failed to halt the slide, reporting a draw in supply of 3.7m bbls against a forecast build of 1.1m bbls, and as the week closed selling volume increased on Friday once again. The weak technical picture has continued overnight and into the early trading session on Globex with oil trading lower again at $65.28 per barrel and now preparing to test the low of Monday in the $63.72 per barrel region, with any move through here then opening the way to a deeper move towards the psychological barrier of $60 per barrel and below.

If the technical picture remains weak, it is the fundamental one which is driving the market, with OPEC continuing to hold firm and not stepping in to manage supply, all of which suggests this is increasingly seen as a tactic to retain market share as the shale and sands producers continue to gain traction in the energy market. Indeed this view is further confirmed by the cut in the price of oil now being sold by Saudi Arabia to both the US and Asian markets, suggesting it is competition and growing concern from within OPEC that are now driving strategy and supply. As such we are now approaching the point at which it will be a question of ‘who blinks first’.

For OPEC it will be pressure from the poorer members who will increasingly voice their concerns and demand a cut in supply, whilst for the alternative energy extractors, it will be the cost of extraction which is key. What is clear, is that OPEC has set its strategy on a collision course with the alternative energy sources, and is prepared to take whatever action is necessary to continue driving oil prices lower still until the pips squeak. Indeed one major bank has recently forecast a ‘worst case scenario’ where oil could fall to $43 per barrel in Q2 next year, a level not seen since November 2008.

The battle lines for oil are now clearly drawn and with OPEC set on this course, for speculative traders longer term the outlook remains very bearish, if and until one group capitulates and throws in the towel. Whichever it is, volume as always will reveal the truth behind the price action both intra day and longer term.

Anna Coulling is a trader with over 16 years’ experience and founder of AnnaCoulling.com