On Tuesday, light crude lost 0.65% and dropped to $101.06 (an intraday low) on concerns that the U.S. government shutdown would reduce demand for this commodity in the world's largest oil consumer. Wrangling in the United States between President Barack Obama and congressional Republicans has forced the first government shutdown in 17 years. The shutdown has left hundreds of thousands of federal employees on unpaid leave.
Additionally, expectations of a rise in U.S. oil inventories were another bearish factor, which put pressure on prices. Data from the American Petroleum Institute (API) industry group showed that U.S. crude inventories rose by 4.6 million barrels last week. Today, the U.S. Energy Information Administration is expected to show that crude stocks rose by 2.3 million barrels in the week ended Sept. 27, according to a Reuters poll. The EIA has said that despite the government shutdown, data will be released normally this week and next.
Having discussed the above, let’s now move on to the technical changes in the crude oil market. Yesterday, we saw another downward move, which took the price of crude oil to the monthly low of $101.0. However, oil bulls manage to hold this level and we saw a pullback, which pushed light crude to $101.63. Despite this growth, crude oil closed below the 38.2% Fibonacci retracement level. The breakdown is not confirmed at the moment, though.
The situation is still bearish on a very short-term basis but the trade looks risky because of the proximity to the next support zone around $100 per barrel. Therefore, the decline could be limited. We do not suggest opening long positions either, because the price of crude oil may test the strength of the monthly low once again. If the buyers manage to hold the price of light crude above Monday’s low in the following days, we will likely see an upward move to the previously-broken rising medium-term support line. If we see a breakout above this line and then crude oil does not drop below $101.05, we will consider opening long positions. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
Summing up, the current situation is unclear. On the one hand, we have a confirmed breakdown below the August low in terms of closing prices. On the other, the breakdown below the 38.2% Fibonacci retracement is unconfirmed and Monday’s low has stopped oil bears. This has some bullish implications for the very short-term picture, but they are not strong just yet.
Very short-term outlook: bearish
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bullish
Trading position (short-term): We do not suggest opening short positions at the moment.
Thank you,
Nadia Simmons
