WTI is on course to extend its losing streak to seven days while at the same time piling pressure on a support area that has held firm since the start of September.
After six days of losses, the trend appeared to be weakening with both the stochastic and MACD displaying divergences.
However, a report from OPEC which showed supply still outgrowing demand and surplus inventories at the highest level in over a decade, appears to have been the catalyst for a break below the support.
You can view the OPEC report here.
WTI has since recovered to only trade a little lower on the day while the last hourly candle actually looks quite bullish.
The test now will come if we see more downside pressure. If the bulls manage to protect the most recent lows, it could suggest that even with the OPEC report, the downtrend is looking exhausted and could reverse.
Even the latest round of selling doesn’t look convincing and is failing to be supported by growing momentum. Given that we already saw one false breakout of this support only a couple of weeks ago, I’m yet to be convinced that this has the legs.
If we can see a daily close below $42.21 – 27 October lows – it may suggest the bears are getting on top but in order to be convinced, I would like to see today’s lows broken and bearish momentum grow. At that point, the move could possibly take off, at which point a move back towards this year’s lows could be on the cards. Although, $41.25 and $40 could offer initial support along the way.
Since writing this, the weekly crude inventory numbers have been released and shown a build of 4.224 million barrels, much higher than 0.752m expected. Despite an initial spike in WTI, this is generally bearish as it indicates lower demand. We’re now seeing it trade back below $42 and could test the daily lows. If it fails to break through it despite more bearish news, it would suggest this level is extremely well supported and could be quite a bullish signal.