On Thursday, crude oil erased all Wednesday’s gains and dropped to a new monthly low of $100.03. Additionally, it is light crude’s lowest level in more than three months. The price was under pressure after data from the American Petroleum Institute showed crude inventories at the Cushing, Oklahoma, hub rose last week, while overall U.S. crude stockpiles also gained.
Oil stocks at the Cushing, Oklahoma, oil storage hub rose by 836,798 barrels in the week to Oct. 11 for the first time since early July. Meanwhile, the API data showed that U.S. crude stocks rose by 5.9 million barrels in the week to Oct. 11, more than double forecasts in a Reuters poll of analysts for a build of 2.2 million barrels.
Taking the above into account, we see that yesterday's API build put a lot of pressure on the oil market and that surplus definitely weighed on prices.
On a side note, yesterday, the Energy Information Administration said it will publish weekly oil inventory data for week-ending Oct. 18 on Thursday, Oct. 24.
Signs of progress around talks over Iran's nuclear program also pressured prices. Years of sanctions have cut Iranian oil exports by more than 1 million barrels per day (bpd). The United States described two days of negotiations as the most serious and candid to date after Western diplomats said Iran hinted it was ready to scale back sensitive atomic activities to secure urgent sanctions relief.
Having discussed these two major factors which had an impact on crude oil, let’s move on to the technical changes in the crude oil market. Yesterday, after a higher open crude oil gained only 19 cents and reached an intraday high of $102.32. However, in the following hours we saw declines, which pushed light crude to its new monthly low of $100.03. With this downward move crude slipped below the 38.2% Fibonacci retracement level once again and closed below it. In this way we have another unconfirmed breakdown below this important support.
Before we summarize, we want to focus on the XOI once again. In our previous Oil Trading Alert we wrote that you might want to consider choosing oil stocks instead of crude oil itself as it seems they have greater upside potential at this moment. On Tuesday, the oil stock index broke above the May top, which is a strong bullish sign. Yesterday, in spite of a decline in crude oil, we saw further growths in case of oil stocks. The XOI gained 0.69% and climbed to 1,449 (an intraday high). In this way the oil stock index almost reached the upper line of the rising wedge.
Please note that in this area are two very important Fibonacci retracement levels:
76.4% (around 1,447) and 78.6% (close to 1,467) – both based on the entire May-October 2008 decline. Additionally, this resistance zone is reinforced by the 100% Fibonacci price projections (at 1,454) based on the weekly chart. In this case, we take into account three data points: the Oct. 3, 2011 low, Feb. 27, 2012 top and Jun. 4, 2012 low. Therefore, further increases may be restrained by this strong resistance zone. However, if the buyers don’t give up and manage to push the oil index above this resistance, the next target level will be around 1,560.
Summing up, although light crude remains above the important medium-term support, another breakdown below the 38.2% Fibonacci retracement deteriorated the very short-term outlook, which turned to bearish once again.
Very short-term outlook: bearish
Short-term outlook: mixed
MT outlook: mixed
LT 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
