On Wednesday, crude oil lost 2% and dropped to $101.18 (an intraday low) as the largest weekly buildup of U.S. crude stocks in a year weighed on a market. Investors had been already concerned that Washington's budget impasse would curb demand in the world's biggest oil consumer, but this big build in supply caught them by surprise and sparked a selloff, pushing losses in light crude beyond $2 a barrel.
Data from the U.S. Energy Information Administration (EIA) showed that U.S. crude inventories shot up nearly 7 million barrels last week, their largest weekly gain since September 2012, well above forecasts by analysts of a 1.5 million barrel increase. The largest build was recorded in the U.S. Gulf Coast region where oil stocks rose by 4.9 million barrels to 188.6 million barrels.
The strong dollar was an additional bearish factor which pushed the price of crude oil lower. News that Janet Yellen would be nominated as the next head of the U.S. Federal Reserve boosted the greenback from an eight-month low against major currencies. Keep in mind that a strong U.S. currency makes dollar-denominated oil more expensive for holders of other currencies.
Once we know the major bearish factors which triggered losses in crude oil, let’s focus on the technical changes in the crude oil market. Yesterday, light crude not only erased all earlier gains, but also dropped to slightly above the September low. With this downward move crude oil slipped below the 38.2% Fibonacci retracement level and closed Wednesday below this level. Despite this decline, the breakdown is not confirmed at the moment. At this point, it’s worth noting that as long as there is no confirmed breakdown below this level further declines are unlikely.
The nearest support is the September low at $101.05. If it is broken, the next support zone will be slightly below $100 per barrel, where the 50% Fibonacci retracement level intersects with the June high.
Summing up, although oil bears pushed the price of crude oil below the 38.2% Fibonacci retracement level, the breakdown is not confirmed at the moment. The situation is bearish on a very short-term basis, but a short trade looks risky because of the proximity to the next support zone around $100 per barrel. Therefore, the decline could be limited.
Very short-term outlook: bearish
Short-term outlook: mixedMT outlook: mixedLT outlook: bullish
Trading position (short-term): We do not suggest opening any positions yet. 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
