Top Story

Crude oil extends falls for second day

Oil prices fell by a good 2.5 per cent during Monday’s session and were down again at the time of this writing on Tuesday afternoon. Several factors are weighing on oil prices, including the small recovery in the dollar and the potential unwinding of the recent rise in net long positions from bullish market participants. Above all, it is the ongoing fundamental issue of excessive supply that is continuing to weigh on oil prices. On this front, not a lot has changed despite the OPEC and Russia’s efforts recently. While these producers have tried to limit their oil output, US shale oil continues to rise. Indeed, according to the US Energy Information Administration, US shale oil production in September is set to rise by almost 120 thousand barrels. If the EIA is correct, this would put US oil output to a record 6.15 million barrels per day. The recent rise in drilling activity means more shale supply is coming on stream. At the moment, one of the few factors that could help support prices would be if there are further sharp falls in oil inventories in the US. Supply data from the API and the EIA will be released within the next 24 hours. If the stockpiles data show builds instead of sharp drawdowns, then there is a risk that oil prices could fall further.

From a technical perspective, both oil contracts remain within their existing wide consolidation ranges, so the long term trend is still not clear. Recent price action has been bearish, though. For example, Brent’s futile attempt to move away from the 200-day moving average last week was a clear bearish sign. As Brent broke out of its prior consolidation range, it hit even stronger resistance between $53.25 and $53.70, an old support range. The buyers were trapped, and the market has since broken a couple key support levels, including $51.30/5 and $50.90/5, levels which could turn into resistance going forward. What happens next may be determined by price action around the next area of support between $49.60 and $50.20. If we see the buyers step back in here then this would keep the rising trend line intact. Otherwise a break of the trend and support at $49.60 would be further confirmation for the bears, in which case they may increase the pressure further in the coming days. Meanwhile WTI is showing a pretty much similar picture in that it has also failed to hold above the technically-important 200-day moving average. But, like Brent, it hasn’t broken its bullish trend line yet. Thus the higher lows remain intact, at least for now anyway.

Only when Brent and WTI break above their respective 200-day moving averages and bearish trend lines will the trend turn decidedly bullish (see the annotations on the charts). Until and unless that happens, the trend is at best choppy and range-bound and at worst bearish. For that reason, crude oil still remains day traders’ market, not trend followers’.

Source: eSignal and FOREX.com

Source: eSignal and FOREX.com

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.