In recent sessions the price of light crude has dropped as diminishing fears over U.S. military intervention in Syria continued to weigh.

These circumstances resulted in a decline which pushed crude oil to its lowest level since September 3. Despite this drop, today, the price of light crude bounced off the previous session’s low as traders looked ahead to the release of key U.S. weekly supply data to gauge the strength of oil demand from the world’s largest consumer.

Yesterday, the American Petroleum Institute said that U.S. crude inventories fell by 0.3 million barrels last week, compared to expectations for a decline of 1.5 million barrels.

Market players also looked ahead to the Fed’s statement later in the session, amid expectations that the central bank will start tapering its $85 billion monthly bond purchases. Most economists expect the U.S. central bank to announce a $10 billion reduction.

What impact did these events have on crude oil’s chart? 

On Tuesday, light crude closed below the 50-day moving average once again, but the breakdown is not confirmed at the moment. It’s very important to watch how crude oil closes today, because one more lower close will confirm the breakdown. 

Additionally, there was also a breakdown below the rising support line based on the August lows, however, only on an intraday basis. If this support holds, we will likely see a pullback in near term. On the other hand, if it is broken buyers will lose their important support and the current correction will likely prolong. Where will the sellers’ target be? It will likely be between $102.22 and $103.50, where the next strong support zone is. It is based on the bottom of the previous corrective move (the August 21 low) and the August low.

To summarize: Although crude oil lost over 0.5% during the previous session, the entire August-September decline is still similar to the previous ones: from the July 19 top to the August 8 low and from the June 19 top to the June 24 low. From this perspective the uptrend is not threatened.

All of what we wrote in our previous alert about long-term and medium-term outlook is still up-to-date today:

Long-term outlook: the picture is bullish and the breakout above two long-term declining resistance lines hasn’t been invalidated

Medium-term outlook: the situation is somewhat mixed, but with a bullish bias. On the one hand, crude oil still remains slightly below the May 2011 top, which is a bullish factor. On the other hand, there was a third unsuccessful attempt to break above this level, which resulted in a decline to the consolidation range, and such price action doesn’t look so bullish.

Short-term outlook: still bullish. As long as all corrective moves since June are similar, the uptrend is not threatened.

Very short-term outlook: bearish.

Trading position (short-term): yesterday, we wrote about bearish head and shoulders pattern on the 4-hour chart, however, taking into account the proximity of the rising support line based on the August lows on the daily chart, we do not suggest opening speculative short positions at the moment.

We'll keep you informed if opening positions is a good idea in our view.

Thank you,
Nadia Simmons