Crude Oil declined yesterday despite API data showing a higher implied demand. Crude supplies fell by 1.2 million barrels versus an expected 1.0 million decline. Even stranger, gasoline stockpiles have shrank more than twice of the expected 1.5 million barrels, coming in at -3.7 million. This should naturally mean that demand for Crude can be reasonably expected to increase in the future as inventory further down the pipeline is dropping. Perhaps the market is placing more focus on the distillate supplies, which rose by 1.8 million versus an expected 1.0 million increase, and the lower implied demand in distillate outweighed the combine bullish implications of Crude and Gasoline numbers.
If that sounded tenuous, perhaps you will find the following explanation more palatable – Crude Oil has been rallying against global fundamentals, and the latest fall is just a technical sell-off taking advantage of the bearish rejection of 108.4 resistance. From a technical perspective, the 108.4 ceiling was the perfect place for a turnaround. Firstly, prices have seen similar peaks back in Mid July and Early August, and both tops resulted in troughs around 103.0. The similarity of the past 2 peaks opens up the possibility of a Triple Top pattern, with 103.0 the key level for bears to break for a move back towards 86 – 97 consolidation range. Stochastic readings agree with such an outlook, with readings signalling the beginning of a fresh bearish cycle.
What stands in the way currently is the Kumo whose Senkou Span A may push prices back up towards 108+ again. However, given that Senkou Span B is flat, the natural “magnetism” of the flat Kumo base may actually encourage price to break the 103.0 level if we are able to trade within the Kumo. With Department of Energy Inventory numbers being released today, we could potentially see Crude Oil prices falling lower to catalyze the bearish move. Even if numbers turned out to be bullish, it is likely that we could still see strong overall bearish pressure ignoring the positive numbers just like yesterday.
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