Crude Oil – Weekly Analysis, 22/10

Oct 22, 5:14 am

Crude oil futures looking weak on inventory build-up and ascending wedge break out

WTI Crude Oil futures fell by nearly 1.4% yesterday, and are down -3.83% lower for the week at the time of writing, trading near $45.42. The weekly US Crude oil inventories report showed a larger than expected build up in Crude oil inventories, which increased by over 8 million barrels for the week ending October 16th. Analysts expected to see Crude oil inventory build up by 2.7 million barrels. The declines in Crude oil come as OPEC and non-OPEC countries meet in Vienna, although no major announcements are expected keeping the markets over supplied by Oil.

Earlier in the week, the IMF warned that Saudi Arabia could drain its financial assets as the country faces a budget deficit of nearly $700 billion while noting a decline in regional growth by close to 2.8%. Saudi Arabia has been a major player in keeping the markets over supplied by refusing to cut down on production despite weakening demand in a bid to squeeze out the more expensive Oil producers. The IMF’s warning couldn’t come at a better time when especially the non-OPEC producers have repeatedly called for a cut down on production in a bid to stabilize prices.

Crude Oil Technical Analysis

On the daily charts, Crude oil has broken out from the ascending wedge/triangle pattern near 46.57. There is a possibility for a retracement back to the breakout level ahead of further declines. The daily charts point to the next support level at $44.26 being the main level of interest. If support gives way at 44.26, Crude oil could simply fall to previous lows near $38.92 through $38.09 level of support.

Crude Oil Daily Chart, 22/10 (Ascending Wedge Break out)
Crude Oil Daily Chart, 22/10 (Ascending Wedge Break out)

On the 4-hour chart, prices are currently declining within the falling wedge/triangle pattern. The price level of $46.57 remains a key level to watch as it marks the breakout from the rising wedge pattern on the daily charts. If resistance is formed at this level, Crude oil futures could decline lower to 44.85 through 44.26 level of main support. The Stochastics oscillator has currently formed a bearish divergence which points to a correction towards 43.10 level of resistance that could now be tested for support.

Crude OiI – H4 Chart, 22/10
Crude OiI – H4 Chart, 22/10

Looking forward, there are no other major releases scheduled this week that could affect the US Dollar. Next week will be important as the US Federal Reserve meets for its monetary policy, followed up by GDP preliminary estimates from the US which currently points to a dovish outlook highlighting the weakening growth in the US and thus demand. Crude oil futures however look bearish with the status quo on production unchanged. Unless there is a significant announcement from Vienna it is unlikely that we can expect to see any significant price moves in WTI prices.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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