Top Story

Crude oil unable to buck heavy pressure

For the past month, the US crude oil benchmark, West Texas Intermediate, has been plummeting within a clearly-formed descending line, complete with short, intermittent relief rallies. After extending this sharp plunge down to key support around the $42 handle this week, Thursday saw another attempt at a modest rebound rally, which ultimately sputtered.

Though the current crude oil slide may be considered overextended by some market participants, fundamentals continue to weigh heavily on prices and are likely to persist in pushing crude oil lower. Since the highs around $55 at the beginning of the year, the price of US crude oil has followed a clear downtrend, shedding more than 20%, to hit a new 10-month low around the noted $42 support level as of Wednesday. The sharp plunge from late May has just been the latest leg to this downtrend.

This sustained drop in crude oil prices has occurred despite the OPEC-led agreement in the first half of the year to limit oil production among major OPEC and non-OPEC participants, as well as the 9-month extension to that deal that was agreed upon in May. The continued oil drop has also occurred despite a larger-than-expected draw in US crude oil inventories last week as reported by the US Energy Information Administration on Wednesday.

Ongoing concerns about prolonged global oil oversupply largely stem from increasing output by the US as well as other major oil producers like Nigeria and Libya, all of which are not participating in the OPEC-led efforts to cut production. Worries that the OPEC deal will ultimately fail in stabilizing crude oil given ramped-up output from non-participants have been a primary driving force for lower prices.

From a technical perspective, as mentioned, US crude oil has just reached down to the key $42 support level, re-testing the low from mid-November. If a strong price rebound fails to materialize, as could well be the case, this support level is likely to be broken down. In that event, the next major downside target resides significantly lower, around the $39 support level, which would re-test the lows of last August.

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.