On Monday, crude oil gained 0.39% and climbed to $102.62 (an intraday high) as traders expressed some optimism that lawmakers will reach an agreement to avert a default on the country's debt. The price of light crude rose after a report that President Barack Obama planned to meet with Congressional leaders from both parties at the White House later in the afternoon. The meeting, though, was later postponed to allow the Senate to make progress toward a deal to raise the U.S. debt ceiling and re-open the government.
Traders are focusing now mostly on news out of Washington, because it could have the greatest impact on crude prices this week, however, there is one more potential bearish development for crude prices - talks between Iran and western leaders in Geneva. In the past weeks any easing of tensions and the fact that Iran wants to negotiate about its nuclear program have had some downward effect. In this case, the main worry is that the negotiations and improving relations with Iran could mean that more than one million barrels of the country's oil will return to the global market. According to the EIA, Iran produced 3.5 million barrels of total liquids in 2012, down 17% from a year earlier, due mainly to sanctions on its oil sales.
Having discussed these important factors which will have an impact on crude oil in the coming days, let’s move on to the technical changes (or rather the lack of changes) in the crude oil market. Yesterday, after crude oil hit its daily low of $101.06, we saw a pullback, which took the price above $102 per barrel. Despite this growth, light crude closed Monday slightly below the 38.2% Fibonacci retracement level once again. Please note that in spite of this fact, the breakdown is still not confirmed. Keep in mind that as long as there is no confirmed breakdown below this level, further declines are unlikely.
Quoting our previous Oil Trading Alert:
Please note that crude oil reached the long-term declining support/resistance line based on the September 2012 and March 2013 highs and almost reached the September 2012 top, which is a medium-term support level. These positive circumstances may encourage oil bulls to act and slow further declines.
Looking at the daily chart, we see that crude oil still remains in the declining trend channel. The upper line of this channel (based on the Aug. 28 and Sept. 19 highs – currently close to the $105.2 level) intersects with the medium-term support/resistance line and forms with it a strong resistance zone. Therefore, if the buyers manage to push the price above this resistance zone, we will likely see further growths. On the other hand, the above strong resistance may encourage oil bears to act. In this case, we may see a downward move to the lower border of the trend channel (currently slightly below $100). At this point, it’s worth mentioning that in this area there is also the next support zone based on the 50% Fibonacci retracement level and the June high.
Summing up, although crude oil rebounded yesterday, it still remains below the 38.2% Fibonacci retracement level and the breakdown is not confirmed. Additionally, light crude reached important long-term and medium-term support, which may have bullish implication for the very short-term picture.
Very short-term outlook: bearish
Short-term outlook: mixedMT outlook: mixedLT 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.
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
