On Friday, crude oil lost over 1% and dropped to its new monthly low of $100.60. It is light crude’s lowest level since July 3. The price of crude declined after the IEA warned that the U.S. fiscal crisis could harm demand and said that supplies were rising faster than previously thought.
Although the IEA said that a relatively short government shutdown would have a "negligible" impact on the oil market, it warned that concerns over the impending debt ceiling could have a greater detrimental effect on oil demand. Meanwhile, weekend talks to avert a U.S. debt default showed signs of progress on Sunday, but there were still no guarantees that a government shutdown was about to end.
At this point, it’s worth noting that the U.S. government shutdown deprived investors of important data on the oil market. Some oil market indicators were not published or may not be published because the agencies that publish them are affected by the shutdown in Washington. For example, on Friday the Energy Information Administration said it is halting its release of weekly oil supply and demand data due to the government shutdown. The oil market instead will have to focus on similar data from the American Petroleum Institute.
Taking the above into account, it seems that will be hard to judge the moves without much of the data from the largest oil consumer. Therefore, we will focus on technical analysis - which can help us estimate the next market moves even without a clear fundamental situation.
On Friday, crude oil slipped below the October bottom and hit a new monthly low of $100.60. With this downward move light crude dropped below the 38.2% Fibonacci retracement level once again and closed whole week below it. In spite of this move, the breakdown is not confirmed. Keep in mind that as long as there is no confirmed breakdown below this level, further declines are unlikely.
Please note that crude oil reached the long-term declining support/resistance line based on the September 2012 and March 2013 highs and almost reached the September 2012 top, which is a medium-term support level. These positive circumstances may encourage oil bulls to act and slow further declines.
Looking at the daily chart, we see that crude oil still remains in the declining trend channel. The upper line of this channel (based on the Aug. 28 and Sept. 19 highs – currently close to the $105.2 level) intersects with the medium-term support/resistance line and forms with it a strong resistance zone. Therefore, if the buyers manage to push the price above this resistance zone, we will likely see further growths. On the other hand, the above strong resistance may encourage oil bears to act. In this case, we may see a downward move to the lower border of the trend channel (currently slightly below $100). At this point, it’s worth mentioning that in this area there is also the next support zone based on the 50% Fibonacci retracement level and the June high.
Summing up, crude oil dropped below the 38.2% Fibonacci retracement level, however, the breakdown is not confirmed. Additionally, light crude reached an important long-term and medium-term support, which may have bullish implication for the very short-term picture.
Very short-term outlook: bearish
Short-term outlook: mixedMT outlook: mixedLT outlook: bullish
Trading position (short-term): We do not suggest opening short positions yet. If we see a breakdown below the lower border of the declining trend channel (based on Sept. 3 and Sept. 30 lows), we will consider opening speculative short positions.
We will keep you – Oil Trading Alerts subscribers - informed should anything change, or should we see a confirmation/invalidation of the above.
Thank you,
Nadia Simmons
