Crude Oil prices pushed above 98.0 today, the highest that we’ve seen since 20th Jun. Price gained on the back of lower US crude stockpiles that shrank for the 1st time in 4 weeks, signalling better demand just as supply concerns emerges due to continued unrest in Middle Eastern region. Oil prices furthered increase yesterday due to stronger than expected ISM manufacturing index, which came in at a 3-month high, flipping from the contraction reading of 49.0 in the previous month to hit expansion territory with a read of 50.9. This also suggest that demand in US would potentially increase even further, allowing price to jump from around 96.0 to slightly above 98.0 highs yesterday.
Interestingly, the gain in WTI Crude did not really translate into gains for the Brent, as Cushing Oklahoma pipelines allow more delivery for Crude coming from West Texas, allowing the WTI Crude to capture a larger proportion of price increase, sending the Brent-WTI spread to a mere $5 USD, the tightest since Jan 2011. With American Petroleum Institute slated to release volume data on Crude Oil supplies later today, we could potentially see stronger speculative behaviors as traders front-run the data and store up long positions in anticipation. This would also mean that the potential for downside risks is greater, and that may be in line with a holding of 98.0 resistance should API data conflict with what we’ve seen last week from the Energy Information Administration.
A hold of 98.0 from a technical perspective will open up the rising trendline as potential bearish target, but that does not mean that a bearish reversal is in place. Looking at price action since April lows, bullish momentum is certainly strong with clear higher lows. In order for bearish reversal to take hold, not only must price break the rising trendline, but price may preferably need to break 93.0 and even 91.0 before 86.0 0 87.0 2013 lows can be contemplated, and then a proper bearish extension from 2013 Jan decline can be realistically formulate. That’s not saying it’s impossible, but any decline from here will face many significant support levels, and should the decline not be fundamentally supported it may be difficult to imagine price breaking through these levels with ease.
With USD finding some weakness recently, commodities as a whole are currently enjoying some respite. Agricultural products are rebounding slightly (even though the decline was fundamentally driven – due to better weather forecasts), while precious metals are climbing higher on on USD weakening. This may be the edge that bulls currently need to consolidate prices above 98.0 which opens up 99.0 as a potential target and ultimately 100.0 round figure again if the previous 2013 swing high is broken.
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