The Department of Energy Crude Oil Inventory came in more bearishly than analysts estimates, growing by 2.6 Million barrels versus consensus estimate of a 1 million drop. This lower than expected implied demand was also seen in Distillate and Gasoline inventories, suggesting that forward demand for Crude will be lower in the future. Hence it is no surprise that Crude prices pushed lower, hitting 103.0 by the end of yesterday’s US session.
Yesterday’s decline can also be attributed to broad risk aversion which drove stocks lower, giving Oil another fundamental reason to trade lower. However, it is difficult to ignore the technical aspect of things, as yesterday’s decline actually started before the US session came into play, and appears to be instigated by the failure to break 104.5 key resistance. It is also interesting to note that prices continue to straddle 103.0 despite good bearish reasons to drive prices further down, especially since we’ve actually reached 103.0 yesterday with less bearish reasons.
Moving forward, if 103.0 continues to hold, the likelihood of a push towards 104.5 increases as it suggest that technical influence continues to reign. Furthermore, after suffering such a huge decline in the past 5 days, some sort of technical pullback should be reasonably expected to begin with. Stochastic readings agrees, with readings being heavily Oversold. However, we only need to look at the last time Stochastic was equally Oversold to know that this does not necessarily equate to a bullish reversal. Prices actually traded lower on 20th Sep despite Stochastic readings moving higher. This is perhaps what bears may need now, where we have an extended consolidation around 103.0 which will provide space/rest for further bearish momentum to enter once again.
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