Crude oil is a classic example of fickle trader sentiments. 2 weeks ago crude oil was sold heavily after Gold sparked a commodities slide. Gold prices recovered quickly last week, trading back up above 1,400, however price of Oil remain depressed as sentiment was still bearish due to overall concerns over global demand. However, after the American Petroleum Institute and Department of Energy inventory stock showed that inventory levels are lower than expected, prices reversed immediately, pushing above 89.0 and 90.0 in short fashion and now a full bullish reversal is underway, with 98.0 a plausible bullish objective. Before hitting 98.0 though, it is likely that 95.0 (around the floor for Jan-Feb consolidation) may provide some resistance. Stochastic readings agree, with readings already nearing the overbought region and most likely topping with 95.0 is reached.
Short-term chart shows that bullish pressure is still strong though. Prices are trading in step-like fashion higher – a sign of consistent and sustainable bullish momentum, with Stoch readings heading towards the Oversold region while current consolidation region holds itself well. This suggest that a temporary drop may be possible, but the odds of rising trendline providing support remains high, which may coincide with a Stochastic trough forming, adding bullish pressure to current short-term rally.
Fundamentally, nothing has change. Global economy remains weak, with industrial productions across the world declining. This is even seen within Germany, which is supposed to grow in 2013, if ECB and various politicians have us believe. China is slowing down, with PBOC’s Zhou assuring us that everything is “normal” and the slow down is expected. There is simply no evidence that the lower inventory reported by API and DOE is sustainable, and represent a systemic improvement in the supply lines that have been pumping in excess inventories into the system.
The temptation right now is to simply assume that price will fly up to 98.0 easily (as what technical analysis tell us above). But given the fickleness of sentiment, we could easily see next week’s DOE data reigniting demand fears, sending Crude oil down once again.