On Tuesday, crude oil extended losses and dropped to a new month low at $102.30 per barrel as fears over a disruption to supplies from the Middle East continued to fade away. It’s worth noting that light crude has lost nearly 8% since September 14 when the U.S. and Russia reached a diplomatic solution on how to handle Syria’s chemical weapons. 

Yesterday, after markets closed, data from the American Petroleum Institute showed a small decline in U.S. oil inventories, which may have a positive impact on today’s prices. Later today, we should keep en eye on the fresh weekly information on the U.S. stockpiles of crude and refined products. The report is expected to show that U.S. crude oil stockpiles declined by 1.1 million barrels last week. Please note that this news might have a significant impact on further moves in the oil market.

Having discussed this piece of data, let’s focus on the technical changes in the crude oil market. Yesterday, the breakdown below the 50-day moving average and the short-term rising support line was confirmed, which makes the very short-term outlook bearish. 

However, the price of light crude dropped to the 38.2% Fibonacci retracement level and the rising medium-term support line on an intra-day basis and then pulled back up creating a bullish reversal candlestick. What’s most important, at the same time crude oil reached the August low, which combined with the above may encourage oil bulls to push the price higher. This has bullish implications for the short- and medium-term pictures, and makes the situation bullish in the medium term and mixed in the short term.

To summarize, so far, the recent decline in crude oil has been only slightly bigger than the previous ones, and the uptrend is not threatened at the moment. Additionally, 

light crude has reached a strong support zone based on the August low, the 38.2% Fibonacci retracement level and the rising medium-term support line, which may result in higher values in the near future. 

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. The situation is bearish on a very short-term basis, but the trade looks risky because of the strong support zone. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

Thank you,
Nadia Simmons