On Monday, crude oil dropped to $101.86 (an intraday low) as crude output in the Gulf of Mexico resumed after Tropical Storm Karen passed without any serious supply disruptions. Additionally, a government shutdown that entered its second week also pushed prices down by rising fears the impasses will affect confidence in the U.S. economy and slow recovery. However, the main worry for oil market investors is the shutdown will curb crude demand in the world's largest oil consumer, as federal workers are temporarily out of work.
What impact did these events have on the price of crude oil?
Three unsuccessful attempts to move above the rising medium-term support/resistance line encouraged oil bears to test the strength of the 38.2% Fibonacci retracement level once again. The sellers triggered a corrective move, which pushed crude oil to $101.86 (an intraday low). With this move the price dropped below the 38.2% Fibonacci retracement level, however, this deterioration was only temporary. Light crude quickly rebounded and closed above this level at $103.17 per barrel.
Please note that as long as there is no confirmed breakdown below the 38.2% Fibonacci retracement level further declines are unlikely. Therefore, this level remains the nearest support. The next one is the September low at $101.05.
Keep in mind that crude oil still remains in the declining trend channel. Therefore, if we see a breakout above the medium-term support/resistance line, we could see a move up to the declining short-term resistance line based on August 28 and September 19 highs – currently close to the $106.4 level.
Summing up, although oil bears pushed the price of crude oil below the 38.2% Fibonacci retracement level, the breakdown was quickly invalidated, which shows the importance of this level for the buyers. Taking into account yesterday’s price action, we may see another pullback to the medium-term support/resistance line in the coming days.
Very short-term outlook: mixed
Short-term outlook: mixedMT outlook: mixedLT outlook: bullish
Trading position (short-term): We do not suggest opening long positions yet. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
Thank you,
Nadia Simmons
