On Monday, crude oil lost more than 1% and dropped to its new month low at $103.12 per barrel. In this way, light crude closed lower for a third session in a row and extended losses to almost 4%.

There were several important factors, which encouraged oil bears to go short in the recent days. Crude oil declined in the previous week as Libya's production recovered to nearly 40% of pre-war capacity after protesters agreed to reopen major western fields, and as fears of U.S. military action against Syria faded. On Monday, we saw further deterioration as higher crude output from Iraq and a possible reconciliation between Iran and the West boosted the supply outlook. Rising South Sudan pipeline exports were an additional bearish factor.

What impact did these events have on crude oil’s chart? 

The price of crude oil declined below the 50-day moving average and the short-term rising support line once again, nevertheless, the breakdown is not confirmed so far.

As we wrote in our today’s Oil Update:

(...) at the daily chart we see a triangle (marked with green). As you see, there was a breakdown below the lower border of this pattern on Friday, which is a bearish signal. However, we would prefer to see an additional confirmation in the form of 2 more closing prices below the lower border of the triangle pattern before writing that lower oil values are very likely.If the nearest support levels do not encourage oil bulls to push the price higher, we will likely see further declines. In this case, according to theory, the price target for the pattern will be slightly below $100 per barrel.

The nearest support is the zone (between $102.22 and $103.50) based on the bottom of the previous corrective move (the August 21 low) and the August low. Please keep in mind that this area is reinforced by the upper and the lower line of the rising wedge and also by the 38.2% Fibonacci retracement level, which together form a strong support zone.

To summarize: the recent decline in crude oil is just slightly bigger than the previous ones so far and the uptrend is not threatened at the moment. 

Even though we thought that the situation was bullish in the previous week we didn't think it was certain enough to open long positions - and it was a good choice to stay out, as oil declined by about 1.5% on Friday.

Very short-term outlook: bearish
Short-term  outlook: mixed
Medium-term outlook: bullish
Long-term outlook: bullish

Trading position (short-term): we do not suggest opening short positions at the moment, because although the situation is bearish on a very short-term basis, the trade looks risky based on the strong support zone, which is quite close (thus the decline could be temporary). We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

Thank you,
Nadia Simmons