On Wednesday, light crude gained over 2% and reached $104.23 (an intraday high). It is crude oil’s largest daily percentage gain since Sept. 18. The price of light crude was supported by a weaker U.S. dollar as commodities priced in the greenback became less expensive for holders of other currencies. Yesterday, the dollar was under selling pressure as a U.S. government shutdown entered a second day with no end in sight.

President Barack Obama met with Republican and Democratic leaders in Congress to try to break a budget deadlock that has shut wide swaths of the federal government, but after more than an hour of talks there was no breakthrough.

On Wednesday, oil was under pressure from a surprise surge in U.S. crude stockpiles. The U.S. Energy Information Administration said in its weekly report that U.S. crude oil inventories rose by 5.5 million barrels in the week ended Sept. 27, missing market expectations for an increase of 2.3 million barrels. However, investors shrugged off the inventory data and also ignored soft numbers out of the labor market. At this point, it’s worth mentioning that investors are focusing more on the U.S. government shutdown and the impact on the dollar, because a weaker dollar boosts commodities priced in the greenback.

What impact did these events have on the price of crude oil?

Earlier on Wednesday, crude oil dropped to its daily low at $101.43, however, oil bulls didn’t give up and manage to hold this level once again. This positive event triggered a pullback, which pushed light crude to its intraday high of $104.23. With this move the price of light crude came back above the 38.2% Fibonacci retracement level and the breakdown below this level was invalidated. Additionally, we saw an upward move to the previously-broken rising medium-term support line and crude oil closed the whole day almost at this line. Please note that if we see a breakout above this line we could see a move up to the declining short-term resistance line based on Aug 28 and Sep 19 highs – currently close to the $107.5 level. If we see a confirmed breakout above this line (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 line.

Naturally, if we see a breakdown below the lower border of the declining trend channel (based on Sep 3 and Sep 30 lows, we will consider opening speculative short position.

Summing up, yesterday, the situation improved slightly. The breakdown below the 38.2% Fibonacci retracement level was invalidated and crude oil came back to the medium-term support line, which has bullish implications for the very short-term picture. 

Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bullish

Trading position (short-term): We do not suggest opening any positions yet. 

We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

Thank you,
Nadia Simmons