The decline in WTI Crude extends yesterday, falling to a low of $96.80 per barrel by the end of the US session. However, the decline does not appear to be the result of a worse than expected Crude Inventories numbers from the Department of Energy nor a more hawkish than expected FOMC Rate Decision.
Latest Crude Inventories numbers showed a build up of 4.0 million barrels, versus an analysts consensus estimate of 2.4 million. This suggest that implied demand for crude oil is actually lower than expected, and should naturally send WTI prices lower. But this is far away from the truth, where prices actually increased during the first 5 minutes after the release of the DOE numbers. This is most likely due to the fact that market was actually looking for an even more bearish number to come out. API numbers which were released one day earlier stood at 5.9 million, and market was naturally seeking an even larger number from DOE as that tends to be true most of the time. Hence in this case, 4.0 million is actually a disappointment, which explains the slight increment in price following the announcement.
The reaction for FOMC announcement is more peculiar. Prices dipped lower slightly due to risk off sentiment flooding the market. However Crude Oil prices recovered as well, ending the hour higher than pre FOMC and going against broad market direction. The only plausible reason why this happened appears to be the fact that prices found technical support via the Channel Bottom which typifies the descend since 28th October peak.
The notion that technical influences is trumping fundamental influence becomes clearer when we consider that a large bulk of yesterday’s decline happened during early European hour, way before the DOE numbers were released. Furthermore, the rally post DOE numbers similarly faced resistance from Channel Top, hence explaining the subsequent decline in prices leading to FOMC event.
However, this assertion does not really help us determine where price will be heading in the immediate short-term.
Currently price is consolidating between 96.7 and 96.9. We’ve just tagged Channel Bottom without having any significant bullish pullback. Naturally this would suggest that a push towards Channel Top should be expected, perhaps by early US session even if prices trade flat till then. Stochastic agrees as well, with readings deep within Oversold region. But it should also be noted that overall technical bias is on the downside, hence the likelihood of prices trading lower without tagging Channel Top is possible. Also, Stochastic readings are pointing lower, suggesting that the current leg of bearish momentum may not be fully over. As such, it is difficult to tell where prices may be heading and traders should wait for stronger signals/confirmation before committing heavily in either direction.
The same applies to weekly chart, where direction for prices is conflicted. By virtue of trading below 98.0 which is the ceiling between Jan – June 2013, we should be able to see additional bearish pressure building up leading towards low 80s. However, rising trendline from June 2012 remains unbroken, and Stochastic readings are heavily Oversold, suggesting that strong bearish follow-through from here at least from a momentum perspective may be a stretch. Hence similarly, traders should wait for further signs before assuming which direction price may go.
If rising trendline is broken, the likelihood of a push towards low 80s increases, but ideally a pullback should be seen with the support turned resistance ultimately holding as a bearish confirmation. Conversely, bulls should wait for a rebound off trendline coupled with price trading above 98.0 in conjunction with Stoch readings pushing above 20.0 for bullish convictions. The good news is that we could most likely see a signal for either direction coming soon with prices currently close to the apex of the triangle formed, hence impatient traders will not have to wait too long for more clarity moving forward.
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