Crude Oil tanked yesterday following a weaker than expected implied demand. American Petroleum Institute (API) weekly report ending in 13th Sept reflected a fall of 300,000 barrels in Crude Supplies when analysts were calling for a decline of 1.5 million barrels. This lower than expected implied demand was not restricted to Crude, with distillates similarly missing expectations by 800,000 barrels. The only silver lining was Gasoline stockpiles which fell by 600,00 barrels when estimates called for a flat reading. But certainly the higher implied demand in Gasoline cannot make up for the huge miss in both Crude and Distillates, sending crude prices to a low of 105.3 during US session.
However, if we were to scrutinize price action of yesterday, we’ll notice that prices actually started declining during early European hours, way before the API numbers were released. It seems that the decline was spurred when Asian rally wasn’t able to break the Channel Top, resulting in price tumbling quickly towards Channel Bottom. In fact, the technical influence is so strong that the bearish damage from API was rather limited. For all the bearish impact mentioned above, the actual bearish movement resulted following the release of API numbers resulted in a 30 cents decline as prices was already consolidating around 105.5 – 105.6 before the announcement. In fact, prices managed to stay relatively flat as Asian market opened.
Interestingly, early European session today saw prices breaking the descending Channel Top without any strong bullish impetus. This move is inexplicable, but as we’re still currently trading below the 106.7 resistance, the overall bearish bias is not invalidated, allowing for a move back towards Channel Top with 105.5 as interim support. Stochastic readings agree with such an outlook, with readings tapering lower within the Overbought region. However a bearish signal is not yet in play, and we may need to wait for price to break 106.25 soft support and wait for Stoch line to break 80.0 for a proper bearish signal.
Weekly Chart continues to reflect the bearishness of price when we trade below 108.50. Similarly, Stochastic readings are close to forming a bearish signal, and due to the large amplitude of bullish/bearish cycles on the weekly chart, we may actually see price breaking the Channel Floor of 103.0 when Stoch levels break 80.0, opening a move all the way towards 75+ levels with 100.0 providing interim support.
Fundamentally there isn’t anything going for Crude Oil right now. The Syrian Crisis appears to be resolved and it may be at least a few month later before the next Middle Eastern crisis emerges. In terms of economic fundamentals, US economic recovery is great, but with Emerging Markets suffering right now, with BRICs slowing down, it is difficult to see future demand for Crude to be increasing. Furthermore, US output is expected to increase in the next few years, making it the largest Oil production country in the world. But unfortunately, if the Government chooses to keep current restriction on US oil exports, the greater outflow will only serve to drive WTI prices lower regardless of whether global economy has recovered by then.
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