On Thursday, crude oil gained 1.48% and climbed to $103.57 (an intraday high). Growing hope for a deal to extend funding of the U.S. government and concerns about supplies from Libya and the Middle East were two major factors, which pushed the price of crude oil higher.
Yesterday, President Barack Obama agreed to consider a proposal from Republican lawmakers to avert a historic debt default. U.S. House of Representatives Republicans plan to offer President Barack Obama a short-term increase in the federal debt limit if he agrees to negotiate with Republicans on matters, including funding to reopen the government, which has remained in partial shutdown since last week.
Two days ago in our Oil Trading Alert we wrote that tensions in the Middle East had always had an impact on the price of oil. Yesterday, we saw this impact once again. Crude oil rose initially on news that Libyan Prime Minister Ali Zeidan was captured and held for several hours by a former rebel militia, prompting concerns of supply disruptions. Later in the morning, a Twitter post commemorating the Yom Kippur war spooked traders, who initially mistook it as news of a serious escalation in Middle East violence. In the end, it turned out the gunmen were in the pay of his own government and the premier was back at work by lunchtime.
Having discussed this interesting news, let’s move on to the technical changes in the crude oil market. Yesterday, light crude slipped 2 cents below the Wednesday bottom and hit an intraday low of $101.16. In spite of this drop, oil bulls managed to push the price higher, which resulted in a pullback slightly below the previous session’s top. With this upside move light crude climbed above the 38.2% Fibonacci retracement level once again and closed Thursday above it. Therefore, the Wednesday breakdown was invalidated, which confirms the importance of this level to the buyers. Quoting our previous Oil Trading Alert:
(…) as long as there is no confirmed breakdown below this level further declines are unlikely.
Taking into account yesterday’s price action, we can see an unconfirmed double bottom formation on the daily chart. If the buyers manage to push the price of crude oil above the Oct. 3 top at $104.38, the price target for this bullish pattern will be around $107.60. However, before oil bulls realize this scenario they will have to break above a strong resistance zone (currently around $105.20) based on the rising medium-term support/resistance line and the declining short-term resistance line determined by the Aug. 28 and Sept. 19 highs. If this line is broken and we see a confirmed breakout above this resistance (in this case one daily close would serve as a confirmation), we will likely open speculative long positions. Until such a breakout is seen, long positions don’t seem to be worth it, as any resulting rallies are likely to be stopped by the above-mentioned resistance zone.
The nearest support is the 38.2% Fibonacci retracement level. The next one is the September low at $101.05. Going lower, we have a support zone slightly below $100 per barrel, where the 50% Fibonacci retracement level intersects with the June high.
Summing up, crude oil pulled back above the 38.2% Fibonacci retracement level and the Wednesday breakdown was invalidated, which has bullish implications for the very short-term picture.
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
