Yesterday, the price of crude oil fell throughout the session as hopes for a deal to end the U.S. debt crisis steadily diminished. Additionally, light crude extended losses late on Tuesday after credit rating agency Fitch warned that it could cut the sovereign credit rating of the United States from AAA. In this way, crude oil lost over 1% and dropped to $100.87 (an intraday low). It’s worth noting that this is its lowest close since the beginning of July.
Just before the market's close, losses accelerated as Senator Richard Durbin told reporters that U.S. Senate negotiations to lift the U.S. debt limit and reopen the federal government were suspended until House Speaker John Boehner could work out a fiscal plan that can proceed in the House of Representatives. As mentioned earlier, those losses were compounded by Fitch's announcement.
The price of crude oil was also buffeted by talks in Geneva between Iran and six world powers aimed at resolving the standoff over Tehran's nuclear program. Although Iranian Deputy Foreign Minister described a negotiation meeting on Tuesday as "good," the White House warned against expecting quick results from these international talks. Therefore, it is too early to talk of a breakthrough.
From today’s point of view, it seems that the price of light crude will stay around the current range until an announcement on a debt deal is made and the outcome of a meeting between world powers and Iran over Tehran's disputed nuclear program is known. However, after that, the oil market could be very volatile for the next few days (or even weeks) because of a huge backlog of data such as employment numbers that have been held up because of the shutdown of the U.S. government.
Once we know these important factors which had an impact on crude oil, let’s move on to the technical changes in the crude oil market. Yesterday, after crude oil hit its daily high of $102.46, we saw a decline, which took the price below $101 per barrel. With this downward move light crude closed Tuesday below the 38.2% Fibonacci retracement level once again and the breakdown was confirmed. In spite of this drop, crude oil still remains above the October low of $100.60. However, if the oil bears break below this level, 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.
On the other hand, we should keep in mind that in the previous days 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. Therefore, in spite of the current decline, these strong support levels may encourage oil bulls to act and slow further declines.
Summing up, although the breakdown below the 38.2% Fibonacci retracement level is now confirmed, crude oil remains above the October low. Additionally, light crude had reached important long-term and medium-term support, which may have a positive impact on the very short-term picture in the coming days, if these levels do indeed hold and we see a move back up.
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 the 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
