Crude Oil pushed lower yet again, extending the bearish sell-off that started this week which accelerated on Tuesday. The decline make sense considering 2 major bearish news event yesterday. First off we have Department of Energy statistics which showed Crude Inventory decreasing by 1.4 million barrels, lesser than the 1.6 million expectation. Cushing OK Crude Inventory is also declining at a smaller pace compared to last week, falling by 1.09 million barrels vs 1.36 million previous. Both figures point to lower implied demand of Crude oil, which is bearish for prices.
A few hours later, FOMC meeting minutes which was released suggest that a QE Taper action may happen in the final 4 months of 2013, with majority of the Fed members comfortable with stopping QE altogether in 2014. This tightening scenario would naturally drag down the economy’s growth rate in the short run, hence pulling oil prices lower.
Except that didn’t really happened for both event risks. Yes both news were bearish in nature, and oil prices did traded sharply lower following the respective announcements. However, prices did rebound back higher almost immediately on both occasion, invalidating the notion that the decline is mainly due to both events. Instead, one can see clearly from the charts that the largest decline in Crude prices occurred during US Midday, after the DOE numbers and before FOMC Minutes.
So what is the driver for current decline then? We’ve said before that Crude Oil is under high technical influence currently, as the rally of past week was moving against fundamentals to begin with. This notion is affirmed when we look at price action post DOE numbers. The rally was capped via the descending Channel, with the next few candles staying below Channel Top but being kept above 104.8 intraday support, hence suggesting that the sell-off during New York noon was due to a technical rebound off Channel Top, with prices accelerating lower once 104.8 is broken. This argument is supported by the fact that support was found on Channel Bottom, followed by the a rebound towards Channel top once again. This rally was stopped short by the FOMC announcement, but the resulting decline reversed at Channel Bottom once again, affirming the relevance and strength of current Channel.
Noting that technical influence is strong, the likelihood of Channel Top holding becomes higher. However, Stochastic readings suggest that a bullish cycle may be possible, and a bullish breakout may still be possible. However, with resistance 104.5 and 105.0 overhead, it is unlikely that bulls will be able to go far, putting bias firmly on the bears side.
Daily Chart shows price dipping into the Kumo, supported by the rising trendline which was the ceiling back between May to June, and floor from July to August. Senkou Span B of Ichimoku indicator is flat, and may attract price to push lower towards it. Stochastic readings are also continuing to point lower, with current levels suggesting that a move beyond 103.0 may be possible given that readings are far from Oversold. Even in the event of price rebounding from the ascending trendline, it is possible that Senkou Span A will provide resistance and send price back lower once again. This is in line with the short-term observation that rallies will be difficult as mentioned above.