Crude Oil pulling back from the highs

Mar 24, 4:23 am
Crude Oil

US Inventories continue to build up, but demand for gasoline see’s a big jump.

WTI Crude Oil prices fell -3.6% yesterday after posting a solid five consecutive weeks of gains which saw prices trade near a 15-week high at $42 a barrel. Prices retreated off the 15 weeks high as the EIA’s Crude Oil inventories report released yesterday showed a larger than expected build-up in US commercial stockpiles. For the week ending March 18th, Crude Oil inventories increased 9.4 million, more than the forecasted 2.5 million and posting a sixth week of growth in inventory buildup. A separate report from the American Petroleum Institute also showed a buildup of 8.8 million. Gasoline reserves, however, fell by 4.6 million barrels indicating commercial demand now into the fifth consecutive week of drawdown and marking the biggest drop in gasoline reserves in two years.

On the supply side, the EIA noted a 2.0% decline but with the latest rally in Oil prices, it is expected that more companies might pick up on production. The weekly Baker Hughes Oil rig count in the US showed an increase for the first time in three months as of data released last Friday.

Earlier this week on Monday, OPEC General Secretary Abdullah al-Badri said that Iran may join the Oil production freeze deal to support prices but noted that certain conditions needed to be met. OPEC members are scheduled to meet on April 17th. Speaking at a news conference in Vienna, the general secretary said that he was hopeful for Oil prices to continue their uptrend, but noted that the 300 million barrels in excess supply need to be cleared up before expecting more stability in Oil prices.

Many economies, more recently Canada forecast Oil prices to average near $40 – $42 in 2016 and rise towards $50 by 2017.

Crude Oil Technical Outlook

The weekly chart for WTI Crude Oil shows prices edging closer to the $44.5 – $44 level of resistance after prices cleared the $38.25 minor support. The current declines come as prices attempted to close above the $39.86 low formed in the week of 16th August 2015, which could now offer a short term resistance. Below $38.25 Oil could post a significant correction down to $32.7 to retest the breakout level from the falling trend line. The downside bias is also validated by the hidden bearish divergence formed, with the 13 period RSI posting a higher high against the lower high in prices, which is indicative of a move back to lower support, which sits at $32.7 for the moment.

Crude Oil Weekly Chart (Continuous Contract) – Biased to the downside with Hidden Bearish Divergence
Crude Oil Weekly Chart (Continuous Contract) – Biased to the downside with Hidden Bearish Divergence

On the daily chart, prices look to have hit resistance from the 200 day moving average last Friday where the gains were capped at $42.23 from the 200 MA. The current declines will likely find short-term support near $38.25 – $38.10, which could see prices attempt to bounce higher. A close below this level on the daily time frame will be indicative of WTI Crude Oil declining lower to the weekly target at $32.7 region.

Crude Oil (Continuous Contract) – Daily Chart, Dynamic resistance established near the 200D MA
Crude Oil (Continuous Contract) – Daily Chart, Dynamic resistance established near the 200D MA

The one hour chart for the WTI Crude Oil futures for May delivery shows prices trading below the support at $40.50 – $40.40. A retest back to this level to establish resistance will likely confirm a pullback to the intraday bearish trend which will then see a decline towards the $38.25 – $38.10 near term support.

Crude Oil (CL_6K, May Contract) – H1 Chart, break of support at $40.5/40.5 could see a dip to $38.25/38.10
Crude Oil (CL_6K, May Contract) – H1 Chart, break of support at $40.5/40.5 could see a dip to $38.25/38.10
(Visited 21 times, 1 visits today)

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.

Follow Me:
Twitter