Crude Oil rallied back above 93.0 for the first time since the great slide that started 3 weeks ago on improvements of implied demand. Gasoline inventories logged the biggest drop in 12 months, based on data given by the US Department of Energy, giving the perception that market demand is getting stronger. This is a huge surprise as the Energy Information Administration (EIA) has forecast that demand of refined products will be lower even after taking into account the spring/summer lull seasonality effect. This seemingly improved demand is not just limited to refined products, with both Cushing OK and Crude Oil Inventories both coming in lower than expected last week, flying in the face of market perception.
The jury is still out whether the implied increase in demand is sustainable and represent a proper shift rather than pure volatility spikes, but bulls are certainly taking their chances to long black gold after the huge erosion in price that was sparked by Gold’s own decline. Looking across commodities, prices have recovered greatly with Gold prices closing in to 1,500. Similarly WTI is closing in towards 94.0, the level before the sell-off started, and the possibility of a move towards 94.0 remains especially with price holding itself above 92.0 support. A break above 94.0 will open up 97.0 and 98.0 peaks that we’ve seen back in 2013, with 95.0 providing interim resistance. Stochastic readings are now heading into Overbought territory since the bullish breakout above 89.0. However with previous Stoch peaks still a fair distance away, this doesn’t negate the possibility of a move towards 94.0. Nonetheless, if bearishness suddenly set in, a break of 92.0 and the rising trendline in conjunction with Stoch forming a peak will help to enhance bearish pressure for a move back into the 89.0 – 92.0 trading range.
Hourly Chart shows price being supported by the rising trendline (not to be confused with the Daily Chart one). Price has managed to break back in to the consolidation range back on Friday above 92.6, and is in good position for a retest of 93.60 if a strong rebound from here materialize. It is also important to note that Crude Oil manage to withstand a huge risk off hit in the form of weaker than expected US GDP growth on Friday, underlining the bullish sentiment at work. There is a Stoch/Price divergence currently, with readings below April 25th levels but price clearly above it. This Stoch divergence is bullish, and suggest that bull stoch cycles deserve a look at while filtering out bearish cycle signals. With an interim bullish signal coming up, traders may wish to keep a close eye on prices in order to catch the eventual rebound from the rising trendline. However, caution is definitely advised as the previous stoch trough (found on 26th Apr) failed spectacularly (in mitigation that is due to the dismal US GDP data dragging it down). As such, traders may wish to seek further confirmation to prevent entering early and getting it wrong.