On Friday, crude oil gained 0.17% and increased to $101.71 (an intraday high). Data from China showed that its economic growth accelerated in the third quarter, boosting the prospects for crude demand for the world's largest oil importer. Additionally, the uncertainty over when the Federal Reserve will scale back its bond-buying program amid a prolonged U.S. budget battle also provided some support to prices.

Many investors think that the Fed will delay trimming its $85 billion-a-month bond-buying program until the economic impact of this month's partial U.S. government shutdown becomes clearer. The Fed's taper decision will ultimately be tied to the economic data. Therefore, this week all eyes will be on the crucial nonfarm payrolls report. The report was originally scheduled for release on Oct. 4, but because of the government shutdown, it will be released tomorrow. It’s worth noting that if the nonfarm payrolls report beats forecasts, it could renew the debate over whether the Fed would still taper this year or not.

Please note that today the U.S. Energy Information Administration will release weekly oil data for the week ended Oct. 11, which allows investors to trade on key U.S. supply and demand figures.

Having discussed the above, let’s move on to the technical changes in the crude oil market. On Friday, crude oil increased to $101.71 (an intraday high), but in spite of this growth, the situation didn’t change much. Light crude remains below the 38.2% Fibonacci retracement level and the breakdown is confirmed, therefore another attempt to test the psychological barrier of $ 100 should not surprise us.

At this point, it’s worth mentioning that crude oil still remains in the declining trend channel. If the oil bears manage to push the price below $100, we will likely see further declines to the lower border of the trend channel (currently slightly above $99), which intersects with the 50% Fibonacci retracement level and the June high.

Before we summarize, we want to focus on the XOI once again.

Quoting our previous Oil Trading Alert:

(...) 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.

Additionally, on Friday we saw a third consecutive close above the May top, which means that the breakout is confirmed. With this upward move the oil stock index reached a strong resistance zone. Therefore, further increases may be decelerated. 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, the breakdown below the 38.2% Fibonacci retracement level was confirmed, therefore another attempt to test the psychological barrier of $ 100 should not surprise us.

Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT 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.

Thank you.

Nadia Simmons
Sunshine Profits' Crude Oil Expert
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