Crude oil looking constructive

<p>Unlike the yellow metal, which has sharply extended its losses and is down for a fifth consecutive session today, the so-called black gold is defying […]</p>

Unlike the yellow metal, which has sharply extended its losses and is down for a fifth consecutive session today, the so-called black gold is defying the dollar’s strength. Both oil contracts are rising despite the growing pessimism about demand. Oil speculators must therefore be feeling that the current level of pessimism is unjustified and are thus reducing their bearish bets accordingly. In addition, the imminent full return of US refineries after their seasonal maintenance works should see a pickup in demand for oil products, such as distillates, and lead to a drop in crude inventories.  The upcoming stockpiles reports from the American Petroleum Institute (API) tonight and the Energy Information Administration (EIA) tomorrow should therefore be watched closely, as there is now scope for disappointment if these expectations are not met. There’s also been a strike at Brazil’s state-run oil producer Petroleo Brasileiro, which began on Sunday. Apparently, this has caused the daily oil output to fall by a quarter. At the time of this writing, Brent was hovering around the psychologically-important $50 level, while WTI was holding its own above $47 a barrel.

From a technical point of view, both oil contracts are displaying bullish characteristics, although neither has yet to make a decisive breakthrough. Brent for example has moved above its 50-day moving average and is currently displaying a bullish engulfing candlestick pattern on its daily chart.  Yet, it is struggling to break above the psychological $50 handle while the downward trend that has been in place since May, which comes in somewhere between $51 and $52, is still unbroken. Would-be oil bulls will need Brent to a break above this trend before they potentially come back in force. The bears meanwhile would want Brent to first and foremost break back below $48.30 and then $47.00, preferably on a daily closing basis.

On WTI, the corresponding bearish trend line is seen around $47.70 to $48.50; the lower end of this range also corresponds with the 61.8% Fibonacci retracement of the most recent downside. Thus, there is a possibility that US oil may come under pressure if and when it reaches this area. That being said, the moment is currently favouring the bulls and a breakout is equally likely. A decisive break above this $47.70- $48.50 range, if seen, could pave the way for a move towards the next resistance around $50-51, where the previous high meets the 200-day moving average. Thereafter is the convergence of Fibonacci levels at $53.10/20 (i.e. the 61.8% retracement of XA and 127.2% extension of BC price swings).

15.11.03 WTI 15.11.03 brent

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.