On Tuesday, crude oil gained 0.38% and reached $104.08 (an intraday high) as geopolitical risk crept back into the markets, even as the U.S. dollar increased after a phone call between U.S. President Barack Obama and U.S. House Speaker John Boehner over the budget crisis.
According to the White House, President Obama told the Republican Boehner that he would be willing to negotiate with Republicans once the U.S. government is re-opened and the threat of a default is lifted. As mentioned earlier, after this positive news, the dollar edged up slightly, but it still remains near its recent eight-month low against major currencies.
Since the U.S. currency hasn‘t offered much support in the recent days, it seems that increases in crude oil were reflective of increased civil unrest in Egypt and the capture by U.S. forces of a senior al Qaeda figure in Libya over the weekend. Keep in mind that tensions in the Middle East have always had an impact on the price of oil. During the last month we saw this impact very clearly. Taking the above into account, we can conclude that recent declines in crude oil were limited on supply disruption concerns from the Middle East.
Before we move on to the technical changes in the crude oil market, it’s worth mentioning yesterday’s American Petroleum Institute (API) data, which showed that U.S. crude stocks rose by 2.8 million barrels to 366.5 million barrels in the week through Oct. 4, as refineries cut output. Please note that we had a surprise surge in U.S. crude stockpiles last week, but in spite of this growth investors were focusing more on the U.S. government shutdown and the impact on the dollar. Therefore, today’s U.S. Energy Information Administration data could have a limited effect on the oil market.
Having discussed the above, let’s focus on the technical changes in the crude oil market. Yesterday, crude oil continued its small rally and reached slightly above $104 per barrel. In spite of this growth oil bulls didn’t manage to push the price of crude oil above the rising medium-term support/resistance line. Therefore, it seems that light crude's moves will unfold between the 38.2% Fibonacci retracement level and the rising medium-term support/resistance line until we see a confirmed breakdown below this support or a breakout above this resistance.
Please note that as long as there is no confirmed breakdown below the 38.2% Fibonacci retracement level further declines are unlikely. Therefore, this level remains the nearest support. The next one is the September low at $101.05.
Keep in mind that crude oil still remains in the declining trend channel. Therefore, if we see a breakout above the medium-term support/resistance line, we could see a move up to the declining short-term resistance line based on Aug. 28 and Sept. 19 highs – currently close to the $106.4 level.
Summing up, although oil bears pushed the price of crude oil below the 38.2% Fibonacci retracement level, the breakdown was quickly invalidated, which shows the importance of this level to the buyers. Taking into account yesterday’s price action, we may see another pullback to the medium-term support/resistance line in the coming days.
Very short-term outlook: mixed
Short-term outlook: mixedMT outlook: mixedLT outlook: bullish
Trading position (short-term): We do not suggest opening long 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
