Prices of WTI Crude fell, but the pace of decline is much lower than Tuesday’s sharp drop. Prices stayed mostly above 99.5, and even though there were numerous attempts to break below the support level bulls managed to defend it valiantly.
Does this mean that the sell-off in WTI is over now?
Firstly, we need to recognize that the slide in WTI on Tuesday was purely moved by bearish sentiment alone and not fundamentally driven. Hence, further bearish follow-through was going to be unlikely especially given the bullish broad market risk trends. Furthermore, data from US Department of Energy reflected a much higher than expected implied demand as Crude Oil inventory has fallen by 2.4 million barrels versus an expected gain of 2.5 million instead. This broke the 10 consecutive weeks of inventory build up, and provided a strong bullish fundamental push against the strong bears seen on Tuesday. Therefore, according to this interpretation it seems that overall bearish pressure still remain, and this is evident via the strong bearish reaction seen whenever 100.0 is tagged.
However, we should also take note that the bullish impact of DOE’s report should have been relatively limited due to the API Inventory report that was released at the end of Tuesday, in which a fall of 5.8 million barrels was reported. This means that the DOE report is actually bearish, not bullish as the implied demand is actually lower based on the latest the estimate rather than the original dated pre API numbers. To be fair, it should be noted that immediate reaction was actually bearish when DOE numbers were released (see 5 mins chart not attached here), with prices pushing down below 99.5. This also means that bears actually had the perfect opportunity to sell WTI aggressively and the failure to keep price below 99.5 is a sign that there aren’t enough bears left and/or bulls are not as weak as we think.
Based on the above analysis, the likelihood of 99.5 support holding becomes higher, and we could even see a move back towards 100.0. With strong bulls seen around 99.5 and bears around 100.0, we could even see prices staying sideways. Stochastic readings sort of agree with the sideways direction as Stoch and Signal lines are both around the 50.0 mid point without any clear direction as the amplitude of past 2 swings have been decreasing.
Nonetheless, bears continue to hold advantage here because WTI bulls have the advantage of risk trends right now and they are barely keeping up with the bears. Should US stocks start to reverse lower or if global risk appetite shifts, a break of 99.5 in the near term should not be too surprising.
Daily Chart agrees with the bearish advantage as price action suggests a bearish push towards 98.0. Stochastic indicator concurs as a bearish cycle remains in play. However, it should be noted that this does not invalidate the short-term analysis above as price can still stay sideways without impairing long-term bearish momentum.